News and Review Volume Five January 2017 Dear Investor It has been over a decade since FICA (The Financial Intelligence Centre Act 38 of 2001) was introduced, and still our anxiety levels seem to spike with the mere thought of having to go through the FICA verification process. At Itransact Fund Managers we understand the important role we play as a financial institution in combatting money laundering, assisting with the identification of the proceeds of unlawful activities and highlighting any possible financing of terrorism or related activities within South Africa. Our aim however, is to make the FICA process as straightforward as possible for you as our client. We would therefore like to create more awareness in terms of what is required of you as an existing client and to clarify why we do insist on receiving certain documents. In this newsletter we touch on the most prevalent challenges we experience and common questions asked by investors relating to FICA. 1.1 Minor to Major Many parents or grandparents open a unit trust account for their children or grandchildren when they are born or while they are still minors. If the account was opened in the name of the child, the child will become the legal owner of the investment when he or she turns 18. At that point IFM will require the relevant FICA documentation for the child and IFM will no longer be able to disclose any information to any other person, irrespective of the fact that this person may be paying the debit order on the account or opened the account originally. Where such a situation exists we therefore urge our investors to: Ensure the updated FICA documentation is provided to IFM when the account holder turns 18 (please refer to our latest FICA checklist on our website); and Ensure the relevant signed documentation is in place where the person who opened the account will still be required to act on behalf of the legal owner of the account. No person has the authority to act on behalf of another person, unless they have been given formal authority by the person they act on behalf, or through a court order. 1.2 Why do we ask for a bank statement? In simple terms, the Financial Intelligence Centre Act requires that we confirm the identity of any person or entity and their physical address when we establish a business relationship with them or conclude a single transaction. So why do we ask for a bank statement? Itransact Fund Managers (RF) (Pty) Ltd 15 Philips Street, Ferndale, Randburg, South Africa, 2194 PO Box 4769, Randburg, South Africa, 2125 Tel: 0861 11 60 75 Fax: 011 561 6812 Company Registration Number: 1999/012170/07 Directors: CM Gill [Managing], JF Zwarts [Chairman], MR Baisley, TC Meyer, J Solms, JE van Heerden Secretary: Aspen Company Services Fund Manager: Heiden Grimaud Asset Management (Pty) Ltd (FSP 596)
As part of our internal procedure and due diligence performed, we require that an investor provides a valid bank account as part of the unit trust account opening process. In order to verify that this bank account is valid, does exist and is in the name of the investor, we require a bank stamped bank statement. 1.3 Why do we ask for proof of your Income Tax Number? In the last few years National Treasury introduced Dividends Tax and Interest Withholding Tax. The South African Revenue Services require IFM to produce a detailed report of every tax value that was withheld on an investor s account, together with their ID number and income tax reference number. We need proof of your Income Tax Number to validate the tax number you have completed on your application form. 1.4 Outstanding FICA documentation We would like to remind you that it is your responsibility as an investor to ensure all your details held by IFM are current and up to date. This includes your FICA documentation. If any of your details have changed since opening your account, please do inform us immediately. If you are not sure if any of your details are incorrect or if you have any outstanding FICA documentation, we would like to urge you to call us on 0861 11 60 75 or email us on admin@itransactfm.co.za in order to confirm. In accordance with the Act, all investor accounts are frozen where we do not hold the required FICA documentation. 2 Analysis of the Portfolios As part of the regulations that govern financial institutions, a manager must publish on its website each calendar quarter a general investor report that details an analysis of the portfolio with reference to the extent to which it has or has not adhered to its policy objective. We can report that for the quarter ending 30 September 2016, the following two portfolios have adhered to their respective policy objectives: IFM Technical Fund with the objective of being a general domestic equity fund where investment decisions are based on technical analysis. IFM Balanced Value Fund of Funds with the objectives of prudential asset allocation and being a medium equity fund to secure balance between capital growth and income. Summary of analysis of the respective portfolios for this quarter: PORTFOLIO IFM TECHNICAL FUND October 2016 Decreased holding of the Indequity Group November 2016 Increased holding of Annheuser-Busch & Compagnie Financiere Richemont SA. Added Schroder European Real Estate Investment Trust. Decreased holding of Standard Bank Group; MMI Holdings & British American Tobacco PLC. December 2016 Increased holding of Schroder European Real Estate Investment Trust. Decreased holding of British American Tobacco PLC; Indequity Group & Reinet Investments SCA. 2
PORTFOLIO IFM BALANCED FUND OF FUNDS October 2016 Increased holding of Allan Gray Money Market Fund; Momentum Bond ABIL Retention Fund (A); STANLIB Bond Fund A Class; Momentum Bond Fund (A)& STANLIB Bond ABIL Retention Fund. November 2016 Increased holding of Allan Gray Money Market Fund. Decreased holding of STANLIB Global Bond Feeder Fund Class B3 & Technical Fund. December 2016 Increased holding of Allan Gray Money Market Fund. Decreased holding of STANLIB Global Bond Feeder Fund Class B3 & Technical Fund. 3 Enquiries regarding your investments Please direct your enquiries as follows: All administrative enquiries, for example a request of statement or balance of investment, redemption request, update of contact details, enquiries regarding FICA or assistance required to log onto the IBrowse system is handled by Itransact Fund Managers. The telephone number is 086 111 60 75, and the email is admin@itransactfm.co.za. All investment specific or portfolio enquiries are handled by Heiden Grimaud Asset Management. The telephone number for the fund is 0861 378 378, and the email is investments@heidengrimaud.co.za. 4 News from the Fund Manager s Office The Power of Diversification We won t be the first asset manager to say that we have had a really difficult investment year during 2016. It all started in December 2015 when President Zuma caused havoc in the currency market with the changes he made to the appointed Minister of Finance. During the year we have seen serious political infighting, rating agencies scrutinizing SA, extreme drought, floods, Anglo s and Barclays expressing their intentions to sell major stakes in local businesses, unexpected voter results in the UK (Brexit) and the USA (Trump) and many more, less sensational happenings that also influenced the investment markets. So how do we, as professional asset managers, handle this complex environment where investors expect superior returns but also wish to limit their risks of losing capital. The not so simple answer is twofold; firstly, clients must invest for the long term and not get spooked by short term results and volatility, and secondly, diversify the portfolio. 3
In this article we will focus more on the second factor, as most investors have been told many times to focus on long-term results when comparing portfolio returns. Diversification in itself is quite complex. It includes decisions on the kind of asset that you should invest in. This is referred to as asset class choices. As a simple example, choices on available asset classes may include the following decisions; you can invest in company s shares, property (directly into property or indirectly through an investment fund), debt (both government and corporate debt, i.e. you lend money to them at a certain interest rate) or you could simply invest the money in some sort of bank account (money market funds, savings accounts, 30-day notice, etc.). To complicate this decision making process, investors further need to decide what to invest in, in each different asset class, i.e. which company s share do you buy. Then you could also diversify into different currencies (still a fairly new and daunting issue for South African investors) to hedge against your own country s currency movement. Then within each asset class you have to make choices. In an effort to limit the scope of this article we shall focus on diversification within a portfolio of shares only and will use a practical example on the portfolio of our new Global investment fund (The Heiden Grimaud Global Fund). Below are some of the shares that we invested in since 1 July 2016 and the different results we experienced on each of these shares. (note that this only includes shares that the fund invested in from 1 July 2016 till 30 Sep 2016 and is not a recommendation to buy these shares at current prices). We also did not necessarily invest the same amount in each of these different companies. Share name Country of listing Currency invested in Sector Percentage move since investment was made Apple Inc USA U$D Technology: Hardware + 8.44% Amazon.com Inc USA U$D Consumer: E-Commerce - 1.63% Anheuser-Busch Belgium Euro Consumer: - 13.68% InBev NV Beverages Barclays Bank UK Pound Financials: +42.69% (London) Banking British American Tobacco UK Consumer: -5.82% PLC Tobacco Boiron SA France Health Care: -7.77% Specialty Pharma Carrefour SA France Consumer: Retail Staples -0.55% Colruyt SA Belgium Consumer: Retail Staples -12.92% Deutche Bank AG Germany Financials: Banking +48.67% The Walt Disney Co. USA U$D Communications: Media +6.03% Ford Motor Co USA U$D Consumer: Automotive -9.27% FBD Holdings PLC Ireland Euro Financials: Insurance +10.35% Intuitive Surgical Inc USA U$D Health Care: -6.97% Medical Equipment Johnson & Johnson USA U$D Healthcare: Pharma -3.92% KBC Group NV Belgium Financials: Banking +31.81% Samsung Electronics Co Ltd UK Technology: Hardware +6.85% (Korea) 4
Share name Country of listing Currency invested in Sector Percentage move since investment was made Steinhoff International Germany Consumer: Retail -5.37% Tencent Holdings Ltd Hong HK$ Technology: Software -0.04% Kong Tesla Motors Inc USA U$D Consumer: Automotive -4.14% Wells Fargo & Co USA U$D Financials: Banking +20.14% Exxon Mobil Corp USA U$D Energy: Oil & Gas -3.90% Source : Bloomberg 14 December 2016 As can be seen from the table above, over the short term the difference in the performance of a single share is huge. Over the long term the differences become smaller (although there will always be the star company and the black sheep in any portfolio). The idea with diversification is to avoid having all your money in the single share that turns out to be the black sheep. This often happens when investors put all or a very large portion of their investable funds into a share or asset that is supposed to provide super returns and is a sure winner. When they then loose their money they blame shares and/or the markets for their losses. Professional asset management teams adhere to proper diversification techniques to limit risk and so avoid this total destruction of value. Conversely however, if an asset manager overly diversifies the portfolio he will simply follow the index (the average of all the listed shares in a particular country, exchange or sector) and never outperform. No value is added and fees should be minimal. The challenge is to diversify sufficiently to limit the risks within a portfolio but keep enough exposure to enjoy the extra special performance of the star in the portfolio. In the above example you want to have a big enough portion (i.e. not just 0.5% of your portfolio) allocated to shares like Deutsche Bank, Barclays and KBC Group. For the same reason you also do not want 80% of your funds in the black sheep such as Anheuser-Busch InBev NV. (By the way, this is a really great company and a world leader that has seen short term negative share price movement that we believe will turn around over the longer term; i.e. not a real black sheep. They just completed buying out South African Breweries!) Over the years, scientific studies have been done to determine at what level diversification provides sufficient lowering of the risk in a portfolio. Portfolios should have at least this level of diversification but not much more. The well known and respected super investor, Warren Buffet (top 5 richest person in the world), has, on numerous times, commented that it is important to make sure that you buy the right company s shares and not simply follow investment fads, look for quality at fair value (not always bargain price levels) and do not over diversify to loose the upside. He also acknowledges that he also sometimes gets it wrong. Nobody is perfect. At Heiden Grimaud Asset Management we adhere to the above principles when managing investment portfolios. We ensure appropriate diversification over a portfolio of carefully selected individual companies. The Heiden Grimaud Global Fund has returned 5,8% in Euro terms over the period 1 July 2016 to 31 December 2016. A good start that we intend to build upon over the long term. Yours in investments. 5