October 10, 2009
 By Bruce Cameron
So often when I look at investor behaviour, I think of that old anti-war song, Where have all the flowers gone? with the refrain "When will they ever learn?".
According to exchange traded fund (ETF) data provided by a company about to be launched, etfsa.co.za, money is continuing to pour into the Absa Capital Markets ETF, New Gold. This ETF invests directly in bullion and therefore directly tracks the price of the metal.
ETFs, which are listed on stock exchanges, for the most part track the indices of various securities or commodities and are particularly attractive to investors because of their low costs.
At the end of June this year, the New Gold fund held R9.5 billion in assets under management. By the end of September, the amount had swollen to R13 billion, confirming its spot as the star performer in raising money from investors stakes.
The next largest ETF in terms of assets under management was the Satrix 40, the first ETF to list in South Africa, with R5.8 billion.
So why the question about when will they ever learn? It is not that New Gold has delivered poor performance. Over the past quarter to the end of September, it provided a return of 5.3 percent. (All returns quoted exclude dividends reinvested.) But over the year to September 30, the return has been a dawdling 2.2 percent. But this is far better than the ravaged db x-trackers MSCI World Index ETF, which suffered a 12.5-percent loss over the same period. However, over the past three months, the MSCI World Index ETF has shown signs of life, recording a return of 10.9 percent.
The best-performing ETF for the past three months was the NewFunds eRafi SA Industrial 25 Index Fund, which, with a return of 20.9 percent, narrowly beat the db x-trackers DJ Eurostoxx 50 Index ETF, which produced 20.2 percent. The Euro-stoxx ETF has attracted only R383 million from investors.
Over the year to the end of September, the best-performing ETF by a long shot was the Satrix Divi Plus Portfolio, which provided a return of 30.8 percent, and yet it has attracted only R693 million. The Satrix Divi follows an index that seeks out companies listed on the JSE that provide solid dividend returns.
So my question why chase the New Gold ETF when better money can be made elsewhere, particularly as gold can be highly volatile.
New Gold definitely has a part to play in a diversified investment portfolio, but why is more money not being invested in the DJ Eurostoxx 50 or the Satrix Divi?
I am sure the cash flows for unit trust funds will also reflect much the same picture of money rushing into sector funds that are at the top of their cycle.
Time to look abroad
Economies internationally are starting to show signs of recovery, which means better profits for companies and therefore better share prices. And with the rand at its strongest in recent times (the Reserve Bank is actively trying to stop it from getting too strong), it would seem appropriate to start casting your eyes abroad.
But it may not be an easy decision. This week, I attended a Financial Planning Institute lecture by Arno Lawrenz, the chief investment officer of fixed-income specialist company Atlantic Asset Management, on fixed-income markets.
Lawrenz made the point that the world's dominant economy, the United States, is printing money to keep the country out of a depression. This is one of the main reasons the dollar continues to weaken. He also points out that there could be further problems down the line, as the excess cash is likely to raise inflation in the US in years to come.
And other major economies are doing the same to a lesser or greater degree.
One of the arguments for investing offshore has been that the rand will depreciate against other currencies, because South Africa always seems to have a higher inflation rate. In other words, the value of our currency should depreciate in line with the difference in inflation rates. So if inflation in the US starts to outstrip ours, the reverse should also apply.
Strong rand in investors' favour
One of the reasons the rand is strong is because higher interest rates are available in South Africa than in many other countries, where short-term rates are at or near zero and longer-term rates are also well down. This makes South Africa an attractive destination. But foreign money has time and again been shown to be fickle.
To my mind, however, now seems to be a good time to consider investing offshore, given the strength of the rand and the fact that there are signs of a recovery of sorts.
Incidentally, the db x-trackers are probably one of the cheapest and easiest ways to invest offshore. You invest in rands, so you are not affected by exchange controls, the products have very low costs and you do not have to make any decisions about which asset manager will out-perform the markets (which very, very few do on a consistent basis).
The important thing, however, is to diversify your investments. You do need money offshore, you do need money in commodities, such as gold, and you do need money in cash investments, property and equities in general.
Members shouldn't have to ask PFA for help
The retirement fund scorecard released by Mamodupi Mohlala, the outgoing Pension Funds Adjudicator (PFA), in a blaze of publicity last week has turned into a bit of a fiasco because of the many inaccuracies it contains.
The release of the scorecard has resulted in retirement fund administrator NBC threatening legal action against Mohlala both in her personal capacity and as the PFA. But despite the failings of the scorecard, this reaction is ludicrous.
Mohlala's intentions in introducing the scorecard were to protect the interests of fund members. She wanted to make funds deal with members' complaints promptly and properly. The need to resolve complaints quickly and without the need for determinations by the PFA is also the reason Mohlala established conciliation panels.
Before and since the scorecard, there have been various personal attacks on Mohlala, saying in effect that she is not so perfect herself. This does not help members.
The underlying problem is that far too many complaints are reaching the adjudicator. For the year to March 2009, there were 6 876 complaints from retirement fund members and their dependants. This is simply not good enough.
Obviously, many complaints were without foundation, whereas others concerned serious issues that required well-considered determinations. But it appears that many complaints could have been resolved long before the complainants found it necessary to go to the adjudicator's office.
The very purpose of a retirement fund is to pay benefits, and the prompt payment of benefits due can make the difference between starvation and financial survival. I am not being dramatic.
NBC would have done better to follow the example of Sanlam, which welcomed the introduction of the scorecard "as an initiative which will drive increased transparency and higher standards in the pension funds industry. Although some inaccuracies have been identified in the scorecard, we recognise that it is in its first year of existence and feel confident it will go from strength to strength in the future."
What is needed now is the rapid appointment of a replacement for Mohlala.
  
 
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