Eastern Cape's Community...
PERSONAL FINANCE
A FREE publicationdistributed Private Wealth Man gementby NFB a
p r i v a t e w e a l t h m a n a g e m e n t
Issue 52November 2013
NFB
PERSONAL FINANCEMagazine
Eastern Cape's Community...
A STRANGE WORLDgreat expectations meets
reality check
PROTECTING YOURPORTABLE POSSESSIONSwhat is covered whenyou leave home?
MANDELA DAYNVest HoldingsFinancial
is making a difference!
p r i v a t e w e a l t h m a n a g e m e n t
contact one of NFB's :private wealth managers
East London tel no: (043) 735-2000 or e-mail: @nfbel.co.zainfo
Port Elizabeth tel no: (041) 582-3990 or email: @nfbpe.co.zainfo
Johannesburg 11 895 8tel no: (0 ) - 000 or email: [email protected]
Web: www.nfb .co.zaec
NFB is an authorised Financial Services Provider
fortune favours the well-advised
Providing quality retirement,
investment and risk planning
advice since 1985.
The best way of preparing for the future is to takegood care of the present, because we know that ifthe present is made up of the past, then the futurewill be made up of the present.
Only the present is within our reach. To care forthe present is to care for the future.
- Buddha
editorBrendan Connellan
ContributorsBrendan Connellan (NFB East
London), Shaun Murphy (Klinkradt
Murphy), Julie McDonald (NFB East
London), Leigh Khler (Glacier by
Sanlam), Zuki Mbekeni (NFB East
London), Michelle Wolmarans
(NFBST East London), Lunga Nkonki
(NFB East London), Andrew
Duvenage (NFB Gauteng), Liberty
Life, Grant Berndt (Abdo & Abdo),
Bryce Wild (NFB East London),
Robyne Moore (NVest Holdings
East London), Debi Godwin (IE&T),
Travis McClure (NFB East London),
Robert McIntyre (NVest Securities)
AdvertisingRobyne Moore
layout and designJacky Horn DesignTA Willow
AddressNFB Private Wealth Management
East London Office
NFB House, 42 Beach Road
Nahoon, East London, 5241
Tel: (043) 735-2000
Fax: (043) 735-2001
E-mail: @nfbel.co.zainfo
Web: www.nfb .co.zaec
The views expressed in articles by
external columnists are the views
of the relevant authors and do not
necessarily reflect the views of the
editor or the NFB Private Wealth
Management.
201 All Rights Reserved.3
No part of this publication may be
reproduced in any form or
medium without prior written
consent from the Editor.
sensible finance EDSLETTEREDSLETTEREDSLETTER
1
Email your full name to @nfbel.co.za to subscribe toinfo
NFB's free economic electronic newsletters.
another aspect of our comprehensive service
sensible finance november13
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a sensible reada sensible read
Igot to feel how poor Achilles felt when he was taken down in the
Trojan War after recently snapping my Achilles' tendon while
playing a game of squash (not to mention also feeling my age).
Ten weeks; one operation; physiotherapy and much frustration later,
I am well on the road to recovery. The unforeseen accident has,
however, had a much greater impact on me than I could have
envisioned on the night that it happened, with several lessons also
learned.
The tendon repair operation was followed by six weeks on
crutches with my foot in a cast-boot. Until then, I'd never given a
second thought to how much one's life is affected when making use
of those little props that soon started to feel as though they were
extensions of my arm . One forgets, or does not realise, that havings
one inoperative leg means that driving a manual transmission isn't
possible and can lead to complete reliance on others just to be
able to leave the house; go to work or go shopping. Shopping is
completely impractical as there are no free arms to push a trolley or
carry a basket. I tried carrying a basket by hanging it on a crutch
and shortly after landing on my butt on the floor next to my milk and
orange juice, vowed not to try that again.
Showering while on one leg was another failed experiment.
What had been a mere three or four metre hop on dry tiles just
minutes earlier, soon became a three or four minute one-footed
shuffle on a wet slippery floor; convinced that at any moment I'd be
lying parallel to the floor with a somewhat damaged head.
The experience, as trying as it has been, has fortunately been a
temporary one. It has made me appreciate my good health and
given me empathy for the elderly and disabled. I'd never before
been able to even imagine the fear that someone can feel
climbing stairs or walking on a slippery floor and people on crutches
seemed mobile, so I had never gone out of my way to offer much
assistance.
Thankfully the injury wasn't more serious and I won't be making
use of my disability insurance just yet (though it has shown me why I
have it in the first place!). Isn't it astonishing that it usually takes an
accident, illness or death for us to learn important lessons such as
these?
Brendan Connellan - Editor and Director of NFB
nfb sensible finance November 2013November 2013November 2013
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sensible finance november13
SENSIBLE CONTENTSSENSIBLE CONTENTSSENSIBLE CONTENTS
NFB CLIENT SATISFACTION SURVEY FEEDBACK4See what our clients think of us! By Brendan Connellan,
NVFH & NFB Director - NFB East London
6 NEW B-BBEE CODES OF GOOD PRACTICESome of the salient features discussed. By Shaun Murphy, Partner - Klinkradt Murphy
7 SURETYSHIP PROTECTIONAre you missing something? By Julie McDonald, Financial Paraplanner - NFB East
London
8 10 STEPS TO A CAREFREE RETIREMENTMaking it a successful one. By Leigh Khler, Head of Research at Glacier by Sanlam
9 MARRIAGE CONTRACT OPTIONSAn important pre-wedding decision. By Zukiswa Mbekeni, Financial Paraplanner -
NFB East London
10 PROTECTING YOUR PORTABLE POSSESSIONSWhat is covered when you leave home? By Michelle Wolmarans, Manager - NFB
Insurance Brokers
11 BUDGETINGThe foundation of every financial plan. By Lunga Nkonki, Trainee Financial
Paraplanner - NFB East London
14 A STRANGE WORLDGreat Expectations meets Reality Check. By Andrew Duvenage, Director/Private
Wealth Manger, NFB Gauteng
16 LIGHTING THE FLAMEA proud track record of innovation and diversification. Contributed by Liberty
18 LIABILITY FOR MUNICIPAL CHARGESPurchaser.beware! By Grandt Berndt, Abdo & Abdo
21 LISTED PROPERTY AT A GLANCEThe upward trend is clear. By Bryce Wild, Financial Advisor - NFB East London
24 OUR CONTRIBUTION TO MANDELA DAYYou too have the ability to impact the life of others. By Robyne Moore, Compliance
& Operations Administrator - NVest Financial Holdings East London
25 ADMINISTRATION OF AN ESTATEPossible obstacles which may be encountered. By Debi Godwin, Director -
Independent Executor & Trust
27 Q &A.You ask. We answer. Advice column answering your investment, personal finance,
life and/or risk insurance questions with Travis McClure, Private Wealth Manager - NFB
East London
28 GET YOUR DIVIDEND FROM VIVIDENDBy Rob McIntyre, r - NVest Securitiesdirecto /stockbroker
4NFB Client SatisfactionfeedbackSurvey
See what our clients think of us! By ,Brendan ConnellanNVFH & NFB Director - NFB East London
SENSIBLE FEEDBACK
sensible finance november13
The more you engage with customers the clearer
things become and the easier it is to determine
what you should be doing. - John Russell,
President, Harley Davidson
NFB conducts an annual electronic client
satisfaction survey in order to gauge whether or not
the company and its staff are meeting the service
expectations of our clients. The information
gathered from this is an important tool which helps
us to develop action plans tailored to meet and
exceed client expectations.
The results from our 2013 survey, which was
conducted in July and emailed to approximately
2,900 clients, received many responses, far
exceeding our expectations. This robust response
rate ensures a high level of statistical validity and a
high probability that the results reflect the views of
the broader NFB client base.
Bill Gates once said that your most unhappy
customers are your greatest source of learning
and so it is with this in mind that we approached
this exercise.
Below we present a summary of our key
findings to you.
Clients gave NFB an overall satisfaction rating
of 97%, with 84% being very satisfied. We were
extremely pleased with this overall result, especially
given the high number of responses as well as the
fact that surveys are often responded to by
dissatisfied respondents as an outlet for their
frustrations.
NFB financial advisors received a satisfaction
rating of 97%, with 87% of clients being very
satisfied. We believe that this excellent result is
directly related to the recent process of up-skilling
our financial advisors, an extensive program which
we embarked on several years ago. All of our
financial advisors have now obtained industry-
related qualifications with the majority of NFB
advisors having postgraduate degree level
qualifications. Several have more than one
postgraduate qualification and are now Certified
Financial Planner professionals.
NFB's administrative abilities and personnel also
scored exceptionally well, with a satisfaction rating
of 99.4%, with 90% of clients being very satisfied.
Once again, we believe this to be indicative of the
training process embarked upon by our
administrative team. A large number of our
administrative staff have studied or are in the
process of studying at tertiary level.
We were also encouraged to see that 92% of
clients felt that they would be likely to recommend
our products and/or services to others and that
94.5% of our clients were satisfied with the amount
of personal contact that they receive from NFB.
What was interesting for us to note is that many
clients are not aware of the full range of services
that NFB offers. For example, although 95% of our
clients knew that we offer investment planning and
87% that we offer retirement planning, only 65%
were aware that we offer risk assurance, this being
life insurance; disability and business assurance.
Only 47% of the respondents were aware that
we offer short term insurance services; 53% were
aware that we offer medical aid advisory services;
67% were aware that our services include the
drafting of wills; the administration of deceased
estates and a stock broking service and 62% were
aware that we have a division that specialises in
Group schemes for businesses.
We have thus identified a need to ensure that
we take greater effort to inform clients about our
comprehensive range of products and services.
NFB management are very pleased with the
overall outcome of the survey. Despite the very
positive feedback, we believe that there is always
room to improve. We are confident that the action
plans put in place as a result of this survey, will help
us to take our service levels to an even higher level
and that future surveys yield even better responses.
We thank all those who took the time to
complete the survey and hope that the results
prove our commitment to achieving the highest
levels of client service and satisfaction. If you are
already an NFB client, we thank you for your
patronage. If you are not already an NFB client, we
hope that you will put our services to the test.
Some of the salient features
discussed. By , CAShaun Murphy
(SA), Partner Klinkradt Murphy
6
NEW BROADBASED BLACKECONOMIC EMPOWERMENT
CODES GAZETTED
B-BBEE
Status
Current
QualificationNew Qualifcation
B-BBEE
Recognition
Level
Contributor
New versus old recognition levels
Non-Compliant
SuretyshipProtection
7
SuretyshipProtectionAre you missing something?
By Julie McDonald,
Financial Paraplanner - NFB
East London
continued on page 20...
sensible finance november13
SENSIBLE PROTECTIONSENSIBLE PROTECTIONSENSIBLE PROTECTION
Financial assistance from a bank or other
institution is often required during the initial
start up of a business or during a period of
growth or expansion. It is common practice for
lenders to call for personal surety from the
individual persons concerned, irrespective of the
legal framework of the business. Once the
suretyship agreements have been signed, the
funds become available and it's back to business
as usual.
The following questions need to be asked:
Do the persons who stood as surety fully
understand and appreciate the duties and
responsibilities associated with this?
Are they aware of the inherent risks in the event
of their death or disability?
What is Suretyship ProtectionInsurance?Suretyship Protection is a life insurance policy taken
out by the business entity (principal debtor) on the
life of the individual (surety) who has stood personal
surety for the loan taken by the business entity from
a financial institution.
Policy StructureOwner: Business Entity
Life Assured: A
Premium Payer: Business Entity
The primary purpose of such insurance is to protect
the estate of the person who has stood personal
surety (the basis of the insurance as well as the
insurable interest). In addition, by protecting the
estate, one is also protecting the family and loved
ones of the surety.
Section 3 of the Estate Duty Act contains
certain provisions where the values of policies are
estate duty exempt (for example, if the policy was
not effected by or at the instance of the
deceased, if no premium was paid by the
deceased and if proceeds are not payable into
the deceased's estate). However, for suretyship
protection policies, the policy IS effected by or at
the instance of the deceased, as the primary
purpose of the Suretyship Protection Policy is to
protect the estate of the deceased. Estate duty
therefore applies and upward adjustments to the
insured amount need to be made for this.
The policy should be grossed up by 25% to
compensate for the 20% prevailing estate duty
rate. Be careful not to gross up by only 20% as this
will result in a net shortfall and being insufficiently
insured for surety purposes. The reason for this is
best illustrated by way of an example:
Assume the death cover on a policy is R10
million.
Example 1: 25% gross up to compensate for estate
duty payable
Gross up amount: R10,000,000 x 25% = R2,500,000
Add to get adjusted death cover amount:
R10,000,000 + R2,500,000 = R12,500,000
Estate duty payable: R12,500,000 x 20% =
R2,500,000
Net amount available after estate duty paid:
R12,500,000 - R2,500,000 = R10,000,000
Example 2: 20% gross up to compensate for estate
duty payable
Gross up amount: R10,000,000 x 20% = R2,000,000
Add to get adjusted death cover amount:
R10,000,000 + R2,000,000 = R12,000,000
Estate duty payable: R12,000,000 x 20% =
R2,400,000
Net amount available after estate duty paid:
R12,000,000 - R2,400,000 = R9,600,000
As can be seen in example 2, using a 20% gross up
results in a R400,000 shortfall!
8Making it a successful one. By Leigh
Khler, Head of Research at
Glacier by Sanlam
carefree retirement10 Steps to a
sensible finance november13
SENSIBLE RETIREMENTSENSIBLE RETIREMENTSENSIBLE RETIREMENT
Each year, as the end of the tax year looms,
many investors take advantage of the tax
benefits of making additional contributions
to their retirement annuities (RA). But so
much more goes into the planning of a successful
retirement than simply making an additional saving
once a year. In this article we look at some of the
things that successful investors do to ensure that
their retirement years are indeed their 'golden
years'.
1. They start investing earlyThe earlier you start saving, the earlier compound
interest can start working for you. For each year
that you delay saving, the higher your monthly
contribution will need to be in order to achieve the
same targeted amount.
2. They make additional savingsIt's unlikely that your company pension fund will
sustain you over a potential 30-year retirement
period. An RA lets you save over the long term as
funds invested cannot be accessed before the
age of 55. New generation RA's also allow you to
select your underlying investments, with full
transparency. You could even include a
personalised share portfolio within your RA
investment. An RA also lets you make additional
contributions at any time, with no penalties if you
stop or reduce monthly payments.
3. They increase their contributions inline with inflationYour monthly contribution to your RA will diminish in
real terms over time if you don't adjust your
contributions in line with inflation. This will result in
you contributing less than you think you are.
4. They have exposure to growth assetsIn order to keep pace with inflation investors need
a certain allocation to growth assets, such as
equities, in their portfolio even post-retirement.
5. They diversifyInvestors should diversify across asset classes as well
as across asset managers. This should reduce the
overall portfolio volatility. There is also a strong case
for diversifying internationally as expectations are
that global equities will outperform the local market
over the next few years.
6. They stick to their investment strategyGenerally, investors who've consulted with a
qualified financial adviser and drawn up a
diversified, risk-profiled plan, will benefit by sticking
to that plan over the long term and not reacting to
short-term 'noise' in the market.
7. They look after their healthHealth and medical care should be prioritised
when saving for retirement, as medical costs can
form a large percentage of a retiree's spending. It's
well documented that medical inflation is much
higher than general inflation.
8. They keep active and interested inlifeRetirement options aren't what they used to be.
These days retirees are opting to start new
businesses and even further their studies. These
activities give meaning and purpose to their
golden years while allowing them to continue to
play a role in the economy. The message is clear
don't stop planning, working or dreaming.
9. They consult with a qualified financialadviserA qualified financial adviser is invaluable in helping
you draw up a realistic plan, while keeping
emotions out of the decision-making process. An
adviser will be able to look holistically at your
investment plan, retirement plan, tax situation, and
advise you accordingly.
10. They take responsibilityNo-one said it was going to be easy. But investors
can do a lot for themselves by taking an active
interest in their investments, by reading and staying
up to date on the markets. So be informed, ask
questions and take control of your future, starting
today.
MARRIAGECONTRACTOPTIONSAn important pre-wedding decision.
By FinancialZukiswa Mbekeni,
Paraplanner - NFB East London
MARRIAGECONTRACTOPTIONS
9sensible finance november13
SENSIBLE OPTIONSSENSIBLE OPTIONSSENSIBLE OPTIONS
One of the many important decisions facing
couples preparing for marriage is the
marriage property regime they choose.
In community of property is the default
marital regime. Should the couple decide against
this default option, a legal document termed an
ante nuptial contract must be signed before the
wedding. The ante nuptial contract spells out the
treatment of the couple's financial affairs during
the marriage and also determines how the spouse's
estates will be handled on dissolution of the
marriage. Dissolution refers not only to divorce, but
also to the inevitable death of either spouse.
In addition to safeguarding assets in the
abovementioned events, it is important to choose
the option that suits the couple's long term estate
planning needs in the best way. There are three
marriage contract options:
In Community of Property. Under thisregime, all debt and assets, from the date of the
marriage, are divided equally between the two
individuals, thereby creating a joint estate. This
applies to assets and also debt acquired before
and during the marriage. From the date of the
marriage, the spouses are jointly and mutually
responsible to each others debt. Shouldhonour
one spouse become insolvent, both spouses could
lose their assets, as they become one entity.
Due to the consequences of exposing even
the unknowing spouse to debt and possible
disrepute, the law requires written consent from
both spouses when entering into any major
transactions. These include the buying or selling of
property; entering into credit agreements, and the
signing of suretyship amongst others.
Out of Community of Propertyexcluding Accrual. This option keeps all theassets and debt of the spouses separate during
and after the marriage. It may be a suitable option
for those who have had children prior to their
marriage, or those that have built up substantial
estates prior to getting married. This option creates
no obligation to share assets. In the case of death
or divorce, each spouse only has a claim on the
assets legally acquired in their name. Should the
marriage come to an end, a spouse will have no
claim on the property of their spouse. The spouses
are able to leave assets to each other only through
a will.
Out of Community of Property withAccrual. This could be viewed as the middleground. This regime allows the partners in the
marriage to run their independent financial affairs,
but requires them to share in the growth of their
estates by dividing the estate with the bigger
growth equally between the spouses. The ante
nuptial contract can be adapted further to include
and exclude whatever items the couple wishes in
the accrual calculation, and may also include
conditions to be met prior to certain assets being
shared. This regime attempts to protect the spouse
who may have been unable to work due to
childbearing and looking after the home, but also
allows the spouse who was the provider in the
home, to retain the bulk of their estate.
Changing the marital regime after marriage is
possible this does however involve an application
to the High Court and a considerable amount of
money. Consultation with a legal advisor prior to
entering into a marriage will enable the couple to
make a well informed decision the first time
around.
If you are considering marriage, we also urge
you to contact an NFB Private Wealth Manager on
043 735 2000 or [email protected] to discuss options
available to you in planning your financial future
together.
SENSIBLE COVERSENSIBLE COVERSENSIBLE COVER
What is covered when you leave home? By ,Michelle Wolmarans
Manager - NFB Insurance Brokers
PROTECTING YOUR POSSESSIONSPORTABLE
i n s u r a n c e b r o k e r s ( b o r d e r ) ( p t y ) l t d .sensible finance november1310
What happens when you walk out your
front door to go to work, school, gym,
a social gathering or on holiday with
various personal possessions? Once
you leave your property the portable possessions
that you take with you are no longer protected by
your household contents insurance policy.
We often underestimate the value of the
possessions that we carry around with us. A typical
Mom's handbag could contain the following items:
branded sunglasses, bottle of perfume, make up
bag, cell phone and wallet. Mom would also
probably be wearing her wedding and
engagement rings, watch and earrings. The value
of these items could easily exceed R10 000. What
happens if Mom's bag is grabbed out of her hand,
or she accidentally sits on her sunglasses or she
takes off her rings to wash her hands and apply
hand cream, and accidentally leaves them in a
coffee shop bathroom?
Regardless of our age and occupation the
reality is that in order to survive and thrive in this
technology driven world we all carry expensive
electronic gadgets on or with us. We organize our
lives and communicate with friends and business
partners via cell phones, Garmins, ipads, tablets,
gaming devices and laptops.
This begs the question: how do we provide
cover for these portable items?
The answer is two-fold: firstly, cover known as
General All Risks must be included on our policies.
General All Risks provides cover in respect of
clothing and items designed to be worn or carried
on a person including sporting equipment
anywhere in the world.
Secondly, it is important to be aware of the
fact that certain high risk items such as cell phones,
ipads and latops are not covered by General All
Risks and therefore have to be insured separately.
Insurers also place a limit payable per item in
respect of General All Risks cover.
This is best illustrated by means of an example:
The Clarke family flies from East London to
Johannesburg and en route a suitcase is stolen. The
suitcase contains clothing valued at R5 000,
toiletries valued at R1 000, a camera valued at R8
000 and an ipad valued at R5 000. The Clarke
family has General All Risks cover
of R10 000.
The claim will be settled as
follows:
Clothing R5000
Toiletries R1000
Camera R2000 (limit per item 20% of
sum insured of R10 000)
Ipad nil (no cover as this item has to
be insured separately)
Total amount paid R8000
In order to have the claim paid in full, Mr
Clarke should have specified his
camera as a separate item due to the high value
of the item; he then would have been paid the full
replacement value. The ipad is specifically
excluded from the General All Risks cover and
should have been insured separately.
It is important to ensure that annual valuations
are obtained in respect of specified items to ensure
that the sum insured represents the current
replacement value.
There has been a significant increase in the
amount of All Risks claims submitted in respect of
items being stolen from motor vehicles as a result of
remote jamming. When you press your vehicle
remote to lock your vehicle the thief will press their
jamming device in close proximity to your vehicle
and this will scramble the message sent by your
remote with the result that your vehicle will not lock.
Once you are out of sight the thieves simply open
your car and help themselves. This creates a
problem when a claim is submitted as the majority
of insurers will not pay a claim for items stolen from
a motor vehicle unless there are signs of forcible
and violent entry into the vehicle.
In order to ensure that you are not the next
jamming victim it is imperative to ensure that your
motor vehicle is locked before you walk away.
Manually check or test the doors and the boot.
Should you require more information pertaining
to All Risks insurance or would like us to provide you
with a quotation, please do not hesitate to contact
our qualified marketers or underwriters.
BUDGETING
11
The foundation of every
financial plan. By Lunga
Nkonki, Trainee Financial
Paraplanner - NFB East
London
IT'S EASIER THAN YOU THINK!BUDGETING
sensible finance november13
SENSIBLE FOUNDATIONSENSIBLE FOUNDATIONSENSIBLE FOUNDATION
Budgeting lies at the foundation of
every financial plan. It doesn't
matter if you're living from paycheque to
paycheque or earning six-figures a year, you need
to know where your money is going if you want to
have a handle on your finances.
Contrary to popular belief, budgeting isn't all
about restricting what you spend money on and
cutting out all the fun in your life. It is rather about
understanding how much money you have and
then planning how to best allocate those funds.
While it might make things a lot easier, the
secret to being financially independent doesn't
only lie in earning a lot of money, but rather in
learning to manage the money you have more
effectively. Reducing your monthly expenditure;
learning not to live on credit and committing to
getting rid of debt requires little more than a simple
change of attitude.
There are a number of principles which can be
applied to help you on your way. Simple concepts,
which when applied, are almost certain to improve
your financial well-being.
The first, and most important, is to pay yourself
first. This means saving the first portion of your
income before you pay off anything. You need to
have an emergency savings fund or a particular
goal you're saving towards. Preferably set up a
debit order for this. Savings are important in
ensuring you have enough money put away in the
event of something coming up unexpectedly.
Secondly, . Have a vision thatremain focussed
is backed up by a concrete, achievable and
realistic plan. Think about getting support if you
know you lack discipline by having one person hold
you accountable. Keep your vision/goal clear and
don't compromise.
Never forget! Know how much money you
earn; who you owe and how much you have left.
The only way to know this is by writing down your
budget. List your creditors by name - this will make
it
more
tangible.
Charge down
debt. Treat debt like the enemy it is! Develop an
aggressive attitude towards debt and you'll soon
be rid of it. For example, if you have five
outstanding debts, tackle the largest first, this
usually accumulates the most interest. Create
strategies to get rid of debt and DON'T replace it
with another once you have paid it off.
Slow down and take a breath. If you're
contemplating a purchase that is not an absolutely
necessary item, give yourself a week to think about
whether you really need it before you hand over
your hard-earned money. Impulse buying is a trap
for the unwary.
Lastly remember the KISS - Keep It Simple,
Stupid! If you spend the first hour of your day
checking accounts; tracking spending and
adjusting spreadsheet columns, you'll soon lose
interest. Try to make your budget as simple as
possible. Perhaps limit yourself to as little as three
categories, such as household; debt and savings. A
cluttered page translates to a cluttered mind, and
a cluttered mind knows no action!
Financial freedom takes willingness,
commitment and loads of discipline. By developing
a budget, you'll start to think more and more about
your relationship with money. As with most
relationships, it needs tending and attention in
order to grow and to remain strong. By having a
proper plan in place and sticking to it, you'll be well
on your way to sunnier days.
Contact an NFB Private Wealth Manager to
assist you with your investing or savings plan on 043
735 2000 or [email protected]
14
Non-resident buying of South African bonds
Source: Citi Research, Datastream
A Strange World:
meets Reality Check
A Strange World:Great Expectations
The story so farThe last 5 years have seen
incredible performance figures
coming out of local markets.
After the financial crisis of 2008,
investors have benefited from significant recoveries in
asset values, despite the great uncertainty that the
world has been living with. At the height of the crisis,
and given the massive structural and financial system
problems that existed in America and in Europe, not
many investors would have predicted the extent to
which markets have recovered.
As gratifying as the recovery has been for investors,
it does come with concerns due to what can only be
described as a large disconnect between market
performance and economic reality. In a South African
context, we have seen a massive equity and property
market surge, yet we are sitting with anaemic
economic growth. With the JSE flirting with its all-time
high, the conclusion that can be made is that South
African businesses (on aggregate) are worth more than
they have ever been worth. Logic would dictate that
for this to be true and sustainable, these businesses
must be operating in very good conditions economic
conditions that support the businesses operations,
revenue streams and consequently their valuations.
But is this the case? South Africa's GDP growth (rate
of growth of the economy) has been sluggish (around 3
%). Labour relations in South Africa are not in a good
way resulting in significant disruptions in the economy
as well as unsustainably high wage increases which
negatively influence the profitability of businesses (in
fact in this regard, South Africa was rated as the worst
of 148 countries in the World Economic Forum's most
recent Global Competitiveness Survey). On a macro
level, high levels of unemployment (officially at around
25%, but in reality probably a fair bit higher) are of
concern. Similarly, the continued underperformance in
the education outcomes of the country (where we rank
an abysmal 146/148 countries in the same WEF survey)
represent massive headwinds to economic
performance. While there are certainly bright spots in
terms of the South African economy, the economic
reality which we currently face, is not an environment in
which we would normally expect equity valuations to
be at all-time highs.
Unintended ConsequencesA logical question would be to ask why we have seen
such strong performance in our markets in the context
of soft economic conditions. The answer is to a large
extent explained by the concept of unintended
consequences. After the 2008 economic crisis, central
banks across the world aggressively cut interest rates
(close to 0% in the US, and 0.5% in the Euro Zone) and
pumped money into the financial system. The aim was
ultimately to stimulate economic activity and to
promote recovery. While we are seeing signs of this
strategy succeeding (specifically in the US context),
there was a somewhat unintended consequence that
arose. Huge volumes of money found their way into
financial assets as opposed to into economic activity.
The so called carry trade is a great example of this.
Investors began to take very large sums of money out
of the low interest rate environments in the US, Europe
and the UK, and started deploying these assets into
markets with higher interest rates. Similarly, large
amounts of money found its way into equity markets.
Emerging markets were major beneficiaries of this set of
circumstances resulting in material increases in equity
prices, property prices, and bond markets and in the
currencies of these countries. South Africa too
benefited from large inflows of foreign money, which
helped buoy most market sectors, despite the lack of
good, strong economic fundamentals to support the
new levels being created.
sensible finance november13
By Andrew Duvenage,
Director/Private Wealth
Manager NFB Gauteng-
15
Listed Equity PE RatioJSE ALL Share Index (AJ253)
continued on page 20...
sensible finance november13
The risk of a disconnectThe disconnect between financial markets and
economic performance represents a challenge for
investors. If the logic is accepted that certain
abnormal factors (extremely low interest rates and
huge amounts of liquidity being pumped into global
markets) are influencing the performance of markets,
one has to consider what will happen when these
factors are removed. The risk here is that when global
interest rates start to increase, and when the so called
Quantitative Easing program starts to taper off, we
could potentially see significant reductions in asset
prices as the tide of global money realigns itself to
reflect a new reality.
At this point, the focus will in all likelihood shift back
towards economic fundamentals and whether the
performance of specific assets justify the prices that
they are currently trading at. The concern is that the
economic fundamentals may not be supportive of the
valuations. As an example, the JSE (on aggregate) is
starting to look somewhat expensive when comparing
its PE ratio to historical averages. Thus, very strong
earnings will need to come out (in a soft economic
period) in order to support these valuations.
Realigning ExpectationsDespite concerns regarding the disconnect that we
see and abnormal factors that could potentially
unwind, the suggestion is not to dump market related
assets and sit in cash. What is being highlighted is that
investors must be cognisant of risk and must understand
their ability to absorb volatility. Unfortunately, the strong
performance of markets has resulted in investors
disregarding risk, and looking to position themselves
more aggressively than is appropriate in order to get
in on the action. Investors (and advisors for that
matter) in times of strong market performance, should
aim to capture as much of the upside as possible, but
still be cognisant of the risk that exists in the assets that
are driving the returns in portfolios.
The key here is to ignore historic returns and realign
ones expectations for returns.
So what is realistic? A good starting point in
answering this question is to look at historical returns
over an extended period of time. Over the past 30
years the JSE has achieved approximately 17% per
annum. Whilst historical performance is just that
historical - it is still a good starting point. A period of 30
years gives a better indication of what should be
expected as it contains performance from both good
and bad times in the economic cycle. But this is the
new South Africa how can our past performance be
an indication of our future prospects? Whilst many
fundamentals have remained the same, there have
been significant changes to the structure of the SA
economy. Changes in fiscal and monetary policy have
resulted in a significantly lower inflationary environment,
and change in political dispensation has resulted in
significant opportunities for economic growth and
development. So technically, to use an historic figure as
the basis for our future estimates may not be
reasonable. Let's look at it from a different angle to get
back to our question regarding realistic expectations.
What are the basic components of determining a
realistic return? Firstly you need to get compensated for
inflation, next for economic growth [GDP], and then be
compensated for the risk associated with investing.
What does this mean in numbers?
o The reserve bank has an inflation target range of 3-
6%
o GDP growth is around 3%
o A fair equity risk premium for SA is approximately 5%
Thus, a simplistic estimate for an expected return in
equity investments is in the region of 10-14%. Whilst this
method is by no means an exact science, it gives us a
useful benchmark to assess our long-term performance.
The implicationHow does having a realistic benchmark help us? The
first outcome is that with lower expected returns, time
horizons are going to have to change. The returns of
the last 3 years have meant that many investors have
achieved their financial goals in record time. This
situation is probably not going to be repeated in the
near future and thus investors are going to have to shift
from a short-term mindset to a long-term outlook. In
practical terms this means that investors who have had
great success with strategies that can be loosely
defined as speculative will have to pay far more
attention to their long term strategy, and to do this they
will have to focus on asset allocation. Briefly, asset
allocation is the blend of the various asset classes
[cash, bonds, property and equity] in a portfolio. This
blend is determined by factors such as age, time-
horizon, appetite for risk, and investment objectives.
MUNICIPAL CHARGES
SENSIBLY CAUSIOUSSENSIBLY CAUSIOUSSENSIBLY CAUSIOUS
Purchaser.beware! By
Grandt Berndt,
Abdo & Abdo
LIABILITY FOR
sensible finance november1318
The question of liability for Municipal charges
has recently been considered by the
Supreme Court of Appeal in the matter of the
City of Tshwane Metropolitan Municipality vs
Mathabathe and Another.
The case centered around Section 118 (1) and (3)
of The Local Government: Municipal Systems Act.
In terms of Section 118 (1), the Registrar of Deeds
may not register the transfer of property except on
the production of a rates clearance certificate
issued by the Municipality in which the property is
situated and which certifies that all amounts due in
connection with that property for all Municipal
services and charges during the 2 years preceding
the date of application have been fully paid.
Section 118 (3), states that an amount due for
Municipal services and charges is a charge upon
the property, in connection with which the amount
is owing, and enjoys preference over any
Mortgage Bond registered against the property.
In the case before the Court, Mr Mathabathe
had sold his property and when the attorneys
attending to the transfer applied for rates
clearance figures, they were informed that the
amount required was R162 722,26, of which R151
324,22 was more than 2 years old and termed
historical debt.
The Municipality refused to issue the rates
clearance certificate against payment of only the
preceding 2 years charges as prescribed by
Section 118 (1). Mr Mathabathe then launched a
Court Application to compel the Municipality to
issue the rates clearance certificate against
payment of the preceding 2 years charges. He
was understandably successful with his Application.
The Municipality, however, launched a
Counter Application that Mr Mathabathe or the
conveyancing attorneys undertake to pay the
balance of the debt, being the historical debt, on
registration of transfer before they would issue the
rates clearance certificate. The Municipality
maintained that should they not receive this
undertaking or guarantee, that they would lose
their right, which was a preference right to even a
Bond Holder, to recover the outstanding balance
due to the Municipality.
The Court dismissed their Counter Application
due to the fact that in terms of Section 118 (3), the
Municipal charges are a debt against the property,
without a time limit and gives the Municipality
preference even ahead of a Bond Holder.
Accordingly, the Municipality is allowed to
ultimately sell a property in execution, even though
the owner at the time legal action was instituted by
the Municipality, was not the owner at the time the
Municipal charges in question were incurred.
Thus, unless one makes sure that the Seller's full
liability to the Municipality has been settled, the
Purchaser could find himself liable for the previous
owner's Municipal debt. This concern is
exacerbated by the inefficiencies of some
Municipalities in their record keeping, the inability
of their sometimes untrained staff to issue accurate
rates figures and their lack of credit control
processes.
In terms of the self same Local Government:
Municipal Systems Act, the Municipalities are to
have debt collection/credit control policies in
place. Thus, whilst a new owner may well be able
to argue that it is due to the Municipality not
adhering to their credit control policy and that
he/she is therefore not liable for the previous
owner's debt, this will inevitably by an expensive
legal process to follow.
As a result, it is recommended that the
Purchaser obtain a warranty from the Seller that all
Municipal charges are paid up as at the date of
transfer.
Managing uccess into the futures
Our services include:
Accounting Auditing Taxation PlanningEstate Planning All Statutory Registration Business Structuring
Concessions Due Diligence Business Succession Planning
Contact us on 043 726 9555 for all your queries.
partners: Gary Klinkradt ca (sa) and Shaun murphy CA (SA)
20
Suretyship Protection ...continued from page 7
A Strange World ...continued from page 15
sensible finance november13
The implementationNow that realistic expectations have been re-
established, it is important that the investor revisit
their investment strategy. To do this, the following
framework can be used:
1. Set your financial goals
2. Calculate the required rate of return to achieve
these goals
3. Examine the asset allocation that would be
required to reach this rate of return
4. Assess risk attached to this asset allocation
5. Adopt the investment strategy or adjust your
financial goals if the risk attached to the asset
allocation isn't commensurate with your personal
risk profile
ConclusionWith the myriad range of products and funds
available in the market that need to be thoroughly
assessed and blended to give you the perfect mix
required to achieve your financial goals, it can be
a daunting task out there on your own. We would
recommend consulting and using a qualified NFB
financial advisor who can give you the
independent, broad-spectrum advice that will help
you come to an informed decision that will enable
you to have the quality of life for which you have
worked so hard. The perfect reaction to this
opinion, is not to rush out and cancel all your
investments and start again, it is the careful
assessment, preferably with an advisor who you
feel comfortable with, of every product, cash flow,
and portfolio as well as life policies you have. Quite
often, institutions can, and will, accommodate
simple changes to the product or portfolio and
these can make an incredibly positive change to
your investment outcome.
What are the benefits of aSuretyship Protection Policy?1. Protect the surety's estate, family and loved
ones;
2. Provides capital cash injection into the business
entity;
3. Outstanding loans owed to the bank are settled
in full;
4. The bank is protected (as it may take a security
cession of the policy);
5. The outstanding loan is settled by the business
entity and thus the value of the business entity is
immediately increased;
6. Attractive looking financial statements;
7. Surplus cash can be retained by the business
entity (e.g. if a policy pays R10 million and the loan
owing is only R7 million, it could result in the fastest
R3 million that business has ever made); and
8. Surplus cash can be utilized for other needs (e.g.:
settle loan accounts owed to shareholders).
The Importance of a SuretyshipProtection AgreementIt is imperative that the business entity (principal
debtor) and the person who has stood surety
(surety) enter into a formalised and binding
agreement. The importance of such an agreement
is that it will compel the business entity to utilise the
policy proceeds to settle the loan, and as a result
of such action, the estate of the deceased is
protected. Further, the said agreement may also
direct what the business must do with surplus cash
i.e. utilise it to settle any outstanding shareholder
loan accounts.
If you have signed surety, then you should
possibly consider a Surety Protection Policy in order
to ensure that your estate is not left wanting!
Contact an NFB Private Wealth Manager on 043
735 2000 or [email protected] for more information.
LISTED PROPERTYAT A GLANCELISTED PROPERTY
The upward trend is clear. By ,Bryce WildFinancial Advisor - NFB East London
Source: TradeCIS
200
250
300
350
400
450
500
550
600
DATE
SAPY Index - SA Listed Property
SAPY
Linear (SAPY)
SA
PY
IN
DEX
VA
LUE
AT A GLANCE
sensible finance november13 21
SENSIBLE PROPERTYSENSIBLE PROPERTYSENSIBLE PROPERTY
During the past five years, listed property has beenSouth Africa's best performing asset class, withannualised returns outperforming those of equities,cash and bonds. However, as has been the topic ofmuch discussion over the past few months, SouthAfrican listed property prices have recently comeunder pressure with many investors asking thequestion why the sudden drop in capital value?
The main reason for this drop in capital valuecan be attributed to the global improvement inbond yields. Analysts have suggested that theglobal search for yield" has resulted in a closecorrelation being formed between listed propertyand bonds, being the two main yield-bearing assetclasses. The main difference between the two isthat listed property provides capital growth and anescalating income, whereas bonds generally donot. As bond yields have moved upwards, bothbond and property prices have come underpressure.
It is important for investors to keep in mind thatproperty, as an asset class, can be volatile - thisapplies particularly to the capital componentthereof. Capital growth cannot be expected tocome in a predictable, straight line. This is illustratedin the graph below, where the returns for theperiod February 2008 to August 2013 are shown.What is important to note, is that despite the recentdrop off in property prices, the upward trend isclear. Despite some volatility along the way,investors have enjoyed outstanding capital growthwhile still enjoying yields of around 7% per annum.
We are all aware that Ben Bernanke, the head ofthe US Federal reserve, has been looking to easequantitative easing for quite some time. When theUS government finally decides that their economyhas recovered enough from the 2008 financial crisisto cease the purchasing of their governmentbonds, the demand for US bonds will decrease. Thismay well result in an increase in interest ratesaround the world which could, in turn, lead tofurther drops in the capital value of listed property.However, as mentioned above, investors will stillreceive the yield portion of their returns. This isexpected to continue escalating at approximately5% per annum over the next few years and is likelyto offset some of the losses in capital that mayoccur. It is expected that capital appreciation oflisted property will continue the upward trend it hasbeen following in the long term.
The South African listed property marketpresents numerous opportunities to investors. SouthAfrican listed property companies, Redefine andGrowthpoint, have both recently launchedAmerican depositary receipt (ADR) programmes,thereby making investing in South African listedproperty more accessible to the world. Foreignownership of most of the large South Africanproperty counters is still below 20%, a position thatmany would like to rectify. The introduction of RealEstate Investment Trusts (REITS) has also madeinvesting in listed property in South Africa moreaccessible, while also providing investors taxbenefits in the form of their pass through tax status.
Investors would be wise to bear in mind thatlisted property is a long-term investment and short-term fluctuations in the capital value of theirinvestments are to be expected. This is but one of afew components that make up the returns offeredby listed property. Over the long term, capitalgrowth should trend upwards - analysts remainoptimistic, and feel that over a 5-year investmenthorizon, listed property as an asset class can delivertotal returns of 10 - 12% per annum.
The historic performance of the listed propertymarket strongly supports its ability to withstandmarket drops. This was evident during the fallsexperienced during 2006 and 2008, where thefundamentals were in place and the incomedistributions were still growing as is the case today.
Contact an NFB Private Wealth Manager on043 735 2000 or [email protected] for moreinformation on listed property and whether or not itis suitable you.for
after the painting job is almost done
Melany Botes & Robyne Mooreplanting the little peach tree
Charl He
rselman &
Bryce
Wilddigg
ing ahole
for
theban
anatree
MANDELA DAYOUR CONTRIBUTION TO
Touching lives in our community you too
can make a difference! y ,B Robyne Moore
NVest Holdings,Financial
MANDELA DAYOUR CONTRIBUTION TO
N est staff with all the IceboV
Day Care Centre children &
Pat from LAFN
sensible finance november1324
The campaign
message for Mandela Day is
Nelson Mandela has fought for social justice for
67 years. We're asking you to start with 67 minutes.
The first Mandela Day was held in 2010 and has
since been celebrated every year on Madiba's
birthday, the 18th July. This is an international
celebration in honour of Nelson Mandela with the
objective being to inspire all people to be of service to
one's fellow human. By taking action in some way, no
matter how small, we are able to help others and
thereby transform the world to make it a better place.
With this in mind, and as part of our corporate
social responsibility, NFB took the decision this year to
be hands on. NVest Financial Holdings (of which NFB
is a subsidiary) has nominated the Loaves and Fishes
Network (LAFN) as its charity. LAFN is an award-winning,
East London based NGO that offers support to
impoverished community initiated crches (currently
supporting 29 crches) through its three year Early
Childhood Development practitioner training
programme, by feeding the children who attend the
crches with two nutritious daily meals and by trying to
find funding to improve, refurbish and renovate general
crche infrastructure. Through this charity, we chose
Icebo, a township crche and one of the
aforementioned 29 crches supported by LAFN,
as the beneficiary for this year's Mandela Day.
Funds were raised through monetary
donations, company civvies days and cake sales.
Barry Moldenhauer, from Mdantsane Build It, very
kindly donated 40 litres of paint, turpentine and
brushes. With the funds raised we were able to buy
much needed educational equipment such as play
dough, books, puzzles, colouring-in books, crayons,
scissors etc. Fresh oranges and apples were taken out,
as well as some chips and sweets. For fun we added
balls, skipping ropes and motorbikes, as the playground
only consisted of a two-swing set and a make-shift
sandpit.
The Icebo Day Care Centre is a shack in a rural
area and the children who attend are between the
ages of 3 and 6. On any one day there can be as few
as twelve children and as many as thirty. Unfortunately,
as transport is a scarce resource and the children
sometimes have very far to walk, some days they do
not attend crche at all which means that, besides
missing out on vital cognitive, physical and emotional
stimulation provided by the dedicated and trained
childcare practitioners, it also means that those
children will probably not receive a nutritious meal that
day.
On the day, a large group of staff from across the
NVest companies, was taken out to Icebo by Pat
Mtintsilana, General Manager of the LAFN, to
participate in planting some trees and seedlings in the
crche's veggie garden. Some staff played with the
children, painted with them and at one stage there
was an informal soccer match being played.
Unfortunately, we were unable to paint the exterior
of the crche as the weather did not play its part, but a
week later a small group of enthusiastic staff again
ventured out. By lunchtime we were all done and
dusted and Icebo Day Care Centre now has a fresh
coat of paint!
We cannot change the world overnight and it is
not possible to help everyone, but it is my belief that
every individual has the ability to impact the life of
another. And as human beings, I believe it is our duty to
do as much as we can, where and when we can
especially for those who cannot help themselves.
So when July 2014 rolls around, ask
yourself....WHAT CAN I DO TO
MAKE A DIFFERENCE ON
MANDELA DAY?
ADMINISTRATIONOF AN ESTATEAND OBSTACLESIN THE PROCESSPossible obstacles which may
be encountered.
By -Debi Godwin, Director
Independent Executor & Trust
49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210
Telephone: Fax: ( ) | e-mail:(043) 735 4633 086 693 3356 / 043 735 3942 [email protected]
At Independent Executor Trust we are committed to personalized service and&
individual attention. With combined experience of 65 years, we specialize in the
Drafting of Wills, Administration of Estates Testamentary Trusts.&
25sensible finance november13
SENSIBLE PROCESSSENSIBLE PROCESSSENSIBLE PROCESS
In South Africa a deceased estate is
administered as prescribed by the Administration
of Estates Act, and distributed in accordance
with a valid registered will or the Intestate
Succession Act, or a combination of both Acts.
Numerous other Acts and regulations pertaining to,
among others, income tax (including VAT and
CGT), estate duty and donations tax, and
maintenance of a surviving spouse, may also
apply.
When a person with assets dies, his/her estate
must be registered at the office of the Master of
the High Court as soon as possible. Certain
documents, as well as a will, if any, must be
submitted. In the case of estates, including joint
estates, with a gross value of less than R125 000 the
Master may waive the official appointment of an
executor to carry out the prescribed administration
process. In all other cases the Master will appoint
an executor.
The official administration process to be
followed by the executor will then commence.
One of the executor's first duties is to advertise to
creditors, obtain details of estate assets, have these
valued if necessary, and to collect certain assets.
Known and reported liabilities must be evaluated
and attention should be given to income tax,
among others. The executor must submit a
liquidation and distribution account to the Master
within six months, or request a deferment. This
estate account shows all assets and liabilities,
distribution to heirs, and details of assets outside the
estate payable directly to beneficiaries.
The Master examines the estate account and
then issues a questionnaire. Once approved, the
account must be advertised and be open to
inspection for 21 days at the Master's office or, in
most cases, at the nearest magistrate's office. If
written objections are received, they must be dealt
with in the prescribed manner. If there are no
objections, or after dealing with the objections, the
executor must pay creditors and heirs and transfer
others assets to the heirs within two months.
In most cases this should not be a complex
process and it should be completed within a
reasonable period of time. However, there are
many obstacles that could delay the process for
months and in some cases even bring it to a
complete standstill. Among the most common
obstacles are poor service by government and
private institutions, incorrect and impracticable
wills, cash shortfalls, disputes and discord among
heirs, a lack of information, the disarray of the
deceased's tax and other matters, lawsuits before
and after death, and in the event of unnatural
death, legal inquests as required for the payment
of policies in certain cases.
27
Q: A common questioned that gets asked in myfinancial planning meetings with clients is How
much do I need in order to retire comfortably?
What is the magic number that I should be trying to
achieve and how do I get there?
A: Each person's financial situation is different andwe need to take into account each individual's
needs and requirements when it comes to
retirement. There are many assumptions and
variables that can change along the way which
makes it difficult to be exact. What we as Financial
Advisors try to do is give the client some idea of
what the future may look like if they continue with
their current strategy or what the consequences
would be of changing strategy. A conservative
view on growth and inflation is taken to ensure that
there are no major surprises in the actual outcomes
later in life. We prefer to paint a worst case
scenario picture than a rosy outlook that might
disappoint.
So the general rule of thumb is that a client will
need 15 to 20 times his final annual salary in order
to ensure that he has sufficient capital to provide a
sustainable income. How do we get to this
number? Let's assume that the final salary is R30 000
pm or R360 000 p.a. This, times 15 would give us a
number of R5 400 000. This amount invested with a
withdrawal rate of 5% would give you a monthly
income of R22 500 pm which is 75% of the final
salary. The 5% withdrawal rate should ensure that it
is sustainable and that there is some growth in the
capital and income over time to hedge against
inflation.
Inflation is the enemy when it comes to
retirement and it is so important to try and ensure
that one is able to maintain the purchasing power
of your money. In order to ensure that you have
enough, it is not only about how much you invest,
but also how the investment performs. Exposure to
growth assets such as equities and properties is
vital, as these assets have proven in the long run to
give above average returns over inflation.
A 30 year old earning R30 000 pm today will be
looking at a final salary of R320 297 pm at age 65
taking into account inflation at 7%. How does he or
she make sure that they get to the capital required
of R57 653 460 based on our sums above? If one
just relies on a simple 10% of salary contribution to a
retirement fund you are going to fall short of your
goal as illustrated in the graph below.
As one gets older and delays the retirement
process the higher the percentage of salary
required to invest becomes. The younger one starts
to save the better. To achieve the higher growth
rates one generally has to take on risk and invest in
growth assets such as property and equities. One
cannot rely on these growth rates as a given and
therefore it is important that one invests as much as
possible whilst still maintaining a balanced lifestyle.
So in summary, start young, invest in growth assets,
get good advice and assess your retirement plan
regularly.
For a needs analysis on your retirement
portfolio feel free to contact one of our Private
Wealth Managers on 043 735 2000 or
Travis McClure
Please address all Questions to: Travis McClure,
NFB Sensible Finance Q&A, Box 8132, Nahoon,
5210 or email: @nfbel.co.zainfo
Sensible Finance - Questions and Answers is an advice columnthat will allow our readers the opportunity to write to a professionaland experienced financial advisor for advice regardinginvestments, personal finance, life and/or risk cover. TravisMcClure will be answering any questions that you may have.
% of salary
contributed to
Pension/RA
Growth Rate % of final salary
achieved at
retirement age
65
10% Inflation + 3% 20%
10% Inflation + 8% 54%
15% Inflation + 3% 30%
15% Inflation + 8% 80%
sensible finance november13
SENSIBLE Q A&SENSIBLE Q A&SENSIBLE Q A&
Get your Dividendfrom Vividend
28
Get your Dividendfrom Vividend
Get your Dividendfrom Vividend
Get your Dividendfrom Vividend
Vividend Income Fund Limited is a Real
Estate Investment Trust (REIT) that is listed
on the JSE. The units trade at R4.90 each
(at 3 October), giving it a market capitalisation of
R1.3bn. This places the fund at the smaller end of
the listed property sector.
The fund has been listed for a few years and
had in May undertaken a capital raise at R5.40 per
unit, thereby increasing the market capitalisation
by about 50%. The proceeds were used to fund
significant acquisitions.
We have a forecast distribution of 50 cents per
unit, which places the units at a yield of just over
10%. Distributions from REITs are taxed in the hands
of individual taxpayers as interest. There is no tax on
such distributions where the units are held in a
personal share portfolio under a retirement fund
structure (including a living annuity).
This yield places the fund near the top end of
listed property in South Africa. By way of
comparison, Growthpoint Properties (with a market
capitalisation of R48bn has a forecast yield of
6.25%) and Redefine Properties (with a market
capitalisation of R29bn) has a forecast yield of
7.25%. Given the size and benefits that this brings,
there is a major difference between a fund like
Vividend and these two property giants, but we
believe that both offerings have a position in a well
diversified portfolio.
We believe that Vividend's distribution is secure
and over time should grow in line with the sector.
Given the size of the fund, track record to date and
peer ratings, we would argue that a forecast yield
of 8.5% is more appropriate, which would imply a
fair value of around R5.90 per unit, which is 20%
above the current trading price.
There is strong selling in the market of Vividend
units, which has pushed the unit price down from
the R5.40 rights issue price. We believe that this
selling is coming from one or two asset managers
who are in the position of having to reduce their
holding for reasons other than fund specific
reasons. This has created increased liquidity and
given other investors (such as ourselves on behalf of
clients) the opportunity to acquire a meaningful
exposure.
Management have shown that they are
circumspect when acquiring properties and we
were encouraged that they walked away from a
number of announced deals, where based on a full
due diligence, their performance metrics were not
met. This suggests that management are not deal-
driven for the sole purpose of bulking up the fund.
Vividend plans to release its results for the year
to August 2013 on 23 October and we should have
a clearer picture of the trading and prospects at
that stage.
Most of the property portfolio is in the Western
Cape and Gauteng and the fund is managed out
of Cape Town. A significant property asset of the
fund is Access Park in Cape Town. The fund has
recently taken control of this asset and plans to
further develop this outlet facility into a premium
value proposition.
We believe that Vividend (much like Redefine
International was at the time that we were buying
for our managed book) is a mispriced asset that
offers a rerating potential. It also offers a generous
yield while we wait for this unlocking of value to
take place. For this reason, we are buying Vividend
with a long term view for both general equity
portfolios and into our managed income
mandates, with an allocation around the 5% level.
By CA (SA),Rob Mc Intyre,
Director and Stockbroker NVest-
Securities
SENSIBLE INVESTMENTSENSIBLE INVESTMENTSENSIBLE INVESTMENT
sensible finance november13
NFB has a separate specialist Short Term Insurance Division, as well as now offering specialist groupcompanies in the fields of stock broking, wills and the administration of deceased estates.
Anthony Godwin (RFP, MIFM) - ManagingDirector and rivate ealth anager, yearsP W M 25experience;
Gavin Ramsay (BCom, MIFM) - ExecutiveDirector and rivate ealth anager, yearsP W M 20experience;
Andrew Kent (MIFM) - Executive Director andShare Portfolio Manager, years experience;20
Walter Lowrie - rivate ealth anager,P W M 28years experience;
Robert Masters (AFP, MIFM) - rivate ealthP WM 28anager, years experience;
Bryan Lones (AFP, MIFM) - rivate ealthP WM 22anager, years experience;
Travis McClure (BCom, CFP ) - rivate ealth P WM 15anager, years experience;
Marc Schroeder (BCom Hons(Ecos), CFP ) -
P W M 9rivate ealth anager, years experience;
Phillip Bartlett (BA LLB, CFP ) - rivate ealth P WM 11anager, years experience;
Gordon Brown (CFP ) - , Regional Manager PE7 years experience;
Mikayla Collins (BCom Hons , CFP ) - rivate( ) P
W M 2ealth anager, years experience;
Glen Wattrus (B.Juris LL.B CFP ) Private Wealth
Manager, 1 years experience6 ;
Julie McDonald (BCom, CFP) FinancialParaplanner, 3 years experience;
Bryce Wild (B.Com (Hons)) FinancialParaplanner, 1 yr experience
Leona Trollip (RFP) - Employee BenefitsDivisional Manager and Advisor, 3 years7experience;
Leonie Schoeman (RFP) - Healthcare DivisionalManager and Advisor, 1 years experience;6
Nonnie Canham (LLB) Healthcare Advisor, 2years experience.
NFB have a STRONG, REPUTABLE TEAM OF ADVISORSwith a between them:WEALTH OF EXPERIENCE
NVest Securities (Pty) Ltd
NFB House, 42 Beach Road,
Nahoon East London 5241
PO Box 8041, Nahoon 5210
(043) 735-1270,Tel:
(043) 735-1337Fax:
www.nvestsecurities.co.za
The Eastern Cape's first home-grown
STOCK BROKERAGE
NVest Securities is an Authorised Financial Services Provider