Another bull hits back at Heystek – Derek Sumption

Biznews’s Alec Hogg is famously bullish on the future of South Africa, so bullish that he moved his household, dogs included, back to South Africa after a sojourn in the green pastures of Surrey in the UK to literally put his money where his mouth is. As he recently told Felicity Duncan in an interview, he believes that Cyril Ramaphosa will turn things around. He is up against the bears; independent financial adviser Magnus Heystek for one who says that sunshine journalism is not going to detract from the fact that the local investment climate is poor and that you should rather invest overseas. Alec has received backing for his trust in South Africa from Derek Sumption, Managing Director at Brantam Financial Services who takes Heystek to task for his “all or nothing investment advice”.  – Linda van Tilburg

By Derek Sumption*

Last week, Magnus Heystek penned an article titled Sunshine Journalism which basically had a go at the media for not reporting poor performance of the local investment industry. This then devolved into the usual rant about the destruction the governing party had inflicted on SA and that ultimately, you should invest your money overseas.

I’ve known Magnus for many years, and when it comes to the damage caused by this government, I’m 100% behind him, plain and simple, they’ve stuffed it up royally.

However, when it comes to his call to invest everything offshore, I differ substantially. I started out in this business in 1984, 35 years ago, and if there’s one thing I’ve learnt, it’s that long term returns come from proper asset allocation, in other words, having your money exposed to the correct investments, at the correct time.

There are times when investing offshore makes imminent sense and there are times when it doesn’t, the notion of all or nothing doesn’t work.

Here’s an example, right now, you can take some of your SA Rands, convert them to Euros at a rate of R16 to the Euro and invest in German government bonds. Sound good, well the little kicker is that you’ll have to pay the German government to lend them money. You see, the current interest rate on German 10 year bonds is -0.12%.

At the same time, SA government bonds are paying 8.4%, I know which one I’d rather be holding.

Magnus makes reference to the SA residential property market having been in a bear market for the last 10 years, which is correct, 2008/2009 was the peak of a massive bubble, so using that as the base, the figures don’t look so good. However, as I said, I’ve known Magnus for a long time, and I distinctly remember him being extremely bullish on properties in Dainfern, I think he owned 4 or 5 at the time.

However, my real beef with Magnus’s article is his all-encompassing statement, and I quote “each and every one with money in a pension/provident/retirement annuity/preservation fund has not beaten inflation over 5 years now, in fact have not beaten inflation over 1, 3 and 5 years”.

Quite simply, this is a load of crap or as Donald would say, its fake news people.

How do I know this, well it’s quite simple really, we manage roughly R1.2bn in pension/provident/and retirement annuity funds, and our funds have beaten inflation. Our two largest Regulation 28 funds, which account for a little over 65% of the R1.2bn have delivered the following returns:

Fund 1yr 3yrs 5yrs 10yrs 20yrs
Cabernet fund (low-to-medium risk) 9.34% 5.29% 6.34% 7.70% 11.14%
Chardonnay fund (mediumrisk) 6.42% 5.50% 6.23% 9.31% 12.86%
SA inflation rate 4.50% 5.40% 5.40% 5.50% 5.30%

It’s worth noting that after all fees and costs, these funds have beaten inflation over every period, bar a 0.14% over 3 years on the Cabernet fund. This is not some hypothetical exercise, this is actual money invested in these funds, in other words, factual.

How then can “everyone invested in a retirement fund not have beaten inflation over 1, 3, 5 and 10 years”, clearly, that’s codswallop.

  • Derek Sumption, Managing Director, Brantam Financial Services.