Dear reader

With this first newsletter in 2014, we welcome all our readers back to the world of business. May you all have a prosperous 2014! We look forward to serving our clients and to enjoying the continued support of our clients. We also look forward to the continued dedication of each member of staff to the cause of all our clients in 2014!

In this newsletter we provide the usual extract of our commentary on investment markets and our expectations of these for 2014, in our monthly performance review; we provide feedback on the Africa Cup of Investments Conference (part 4); we report on recent staff movements and on the changes to Regulations 28 brought about by the replacement gazette no 5389 published on 31 December 2013, and finally there is a very useful explanation of professional indemnity insurance cover.

For those who take an interest in the pensions industry we also provide links to a few interesting articles.

As always, your comment is welcome, so open a new mail and drop us a note!

Regards

Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 12.2013

In December the average prudential balanced portfolio returned 2.77% (November: -0.08%). Top performer is Prudential (3.31%), Investment Solutions (2.06%) takes the bottom spot. Investec, top performer for the quarter outperformed the 'average' by 0.8%, primarily through sector allocation and stock picking. On the other end of the scale Investment Solutions' underperformance of the 'average' by 1.4%, was caused primarily by its underweight exposure to offshore assets. Its offshore allocation was 18% versus 30% for the 'average' (end September).

Despite strongly declining inflows of foreign investment capital from local markets in 2013, its impact was neutral on equities, but still provided good support to the local fixed interest markets, thereby aiding a low local interest rate environment. The FTSE/JSE Allshare returned 18% ex dividends (21.4% incl. dividends).

Around 6% of the total equity performance of 2013 resulted from the rerating of equities while the balance of 15% represents earning growth. For this year we would not see foreign portfolio flows to produce much downward pressure on local equities, currently being at around zero. However, a rising interest rate environment, the advent of which may well be forced by further weakening of the Rand, should put a damper on local equity markets as the result of which we would not expect any further rerating of equities in 2014, as we have seen in 2013.

We see no reason at this stage though why company earnings growth in 2014 should not equal the 15% of 2013. As the result, we would expect local equities to return around 15% in 2014, with some upside potential.

Read our full commentary, find out how these and other developments impact on our investment views and download Benchtest 2013-12, here...

Africa Cup of Investments Conference 2013

Part 4

The theme of this year's conference was "Challenging the Investment Mindset". As in previous years it was a well organised, very interesting and informative conference that can only be recommended to anyone who has a role to play in the pensions industry. Here are some extracts from part 4 of our conference review.

Exchange traded products: ETF's (exchanged traded funds) and the growth of ETN's (exchange traded notes)

• Exchange traded products are an appropriate investment vehicle due to mounting cost pressures;
• Main characteristics of exchange traded funds:
• they present no credit risk as they are backed by physical assets;
  • they are established as a legal entity;
  • they are inappropriate for investment in commodities as they cannot hold the physical asset.
• Main characteristics of exchange traded notes:
  • they are issued by a bank;
  • the investor takes the credit risk of the issuer.

Adviser focus: adding value thru 'gamma'

• 'alpha' in investment terminology refers to the market and requires the investor to choose a manager or a fund;
• 'beta' in investment terminology refers to asset allocation and asset selection strategy of the investor;
• 'gamma' in investment terminology refers to putting a 'scientific spin' to 'gut feel' that is measurable (an analogy was cited: vitamins do not improve health, but those that use them are healthier because it's the persons that are more concerned about their health);
• an adviser can add 'gamma' through advice.
• How does the investor find an adviser that he can trust?

Generational attitude to investing: preparing for longevity

• For every additional year of life expectancy you need 5% more retirement capital;
• How to reach young people in order to convey the dilemma of ever increasing life expectancy.

Read the full summary here...

RFS staff movements

RFS is extremely proud of its staff retention achievement and can pride itself with a staff turnover of only 3% over the past 14 years of our existence. Such achievement does not happen by coincidence but is the result of the character of our business.  Despite all best efforts though, it would be preposterous to expect never to lose staff, and last year was a uniquely 'bad' year as far as our staff retention record is concerned. Over the past 12 months we lost 6 staff members. However, of these we would consider only 2 resignations as avoidable.

Our latest loss is that of Margit Rittman, who will leave our service at the end of January 2014. As sad as we are losing Margit, we will never stand in the way of someone who sees a greater future elsewhere. We wish Margit well with her future endeavours and all the best for the future!

On a more positive and certainly our preferred note the permanent appointment of Whitney de la Harpe was confirmed recently. Whitney joined us in May 2013. She matriculated at Walvis Bay High School in 2005 and was one of their top 10 grade 12 learner. She started her studies at Unam in a commercial field in 2006, and completed her first 2 years of studies. She started her working career in 2011 as an accounts clerk at Freza Engineering, where after she joined Gecko Drilling as an Assistant Accountant. Whitney is a member of our Benchmark team, committed as all other team members to extend service excellence to all our clients. We extend a hearty welcome to Whitney and hope to have her playing in our first team for many years to come!

News from the Namfisa

Regulation 28 and 29
This summary was compiled by Sabine Halberstadt, legal consultant.

New Regulations 1, 26, 27, 28 and 29 under the Pension Funds Act were published in Gazette number 5205 on 6 September 2013. As the result of a number of ambiguities presented by this gazette, it was withdrawn and replaced by Gazette number 5383 Gazette effective 1 January 2014. Note that this gazette contains a regulation issued under the Long-term Insurance Act that is the equivalent to Regulation 28.

Regulation 1, introducing certain new definitions, remains unchanged.

Regulation 26, dealing with administrative penalties, remains unchanged.

Regulation 27, dealing with the interest to be charged on direct housing loans, remains unchanged but the effective date is moved from 1 September 2013 to 1 January 2014.

The changes affected to Regulation 28 are set out hereunder:

• (1) The following definitions were changed:
  • 1.1 "banking institution", which now also includes banking institutions authorized as such under the laws of a country other than Namibia,
  • 1.2 "building society" which also now includes building societies authorized as such under the laws of a country other than Namibia and
  • 1.3 "Post Office Savings Bank" which now also includes a savings bank or similar institution authorized as such under the laws of a country other than Namibia.
• (2) Sections (3) (a)(i) to (v) set out a regressive scale of dual listed companies deemed to be domestic assets, which are required to be a minimum of 35% of market value of a fund's total assets.>
• This changed as follows:
  • (i) 30 per cent of the market value of its total assets from 1 January 2014 (previously 1 April 2013)
  • <(ii) 25 per cent of the market value of its total assets from 1 January 2015 ( previously 1 April 2014)
  • (iii) 20 per cent of the market value of its total assets from 1 January 2016 (previously 1 April 2015)
  • (iv) 15 per cent of the market value of its total assets from 1 January  2017 (previously 1 April 2016)
  • (v) 10 per cent of the market value of its total assets from 1 January  2018 (previously 1 April 2017)
• (3) Section (1) (4), deals with the minimum investment in unlisted investments. This changed as follows:
  • The effective date for achieving a minimum of 1.75% investment in unlisted investments has been moved to 31 December 2014 as the result of the date of publication having been move on to 31 December 2013.
• (4) Section (5) deals with reporting on a fund's investment holdings.
  • This has been changed from .... "within 90 days..." to " within 90 days or a shorter period determined by the Registrar by written notice, after the end of each calendar quarter, submit to the Registrar a statement of investment holdings in such form as the Registrar may determine."
• The Prescribed interest rate for housing loans (Regulation 27) has remained unchanged as per previous GG: repo rate +4% per annum with effect of date of publication of 1 January 2014 (previously 1 September 2013).

REMINDER: Annual Namfisa ERS returns due

Namfisa informed all pension funds that the annual return for 2013 is due by 14 February 2014. Pension funds are advised to liaise with their service providers to ascertain that the fund meets its obligations in good time.

Professional indemnity cover and policy terms

The need for, and required extent of professional indemnity cover, is a difficult topic trustees regularly grapple with.

We recently obtained an easy comprehensible explanation compiled by a global short-term broker house.

It explains why trustees should consider their fund to take out cover rather than being cover through the employer's policy:

• what are trustees duties;
• why is cover needed;
• what is the scope of cover -
  • fraud or dishonesty of any officer;
  • theft by any person;
  • errors and omissions;
  • trustees' extension;
  • computer crime;
  • claims made basis of cover;
  • retroactive cover;
• definitions of key terms -
  • negligence;
  • wrongful act;
  • officer;
• how to submit a claim;
• why have a policy dedicated to the fund;
• more about the honesty index;
• calculation of required cover.

Download the document here...

Employer was wrong withholding pension pay-out, says PFA

"An employer who withheld an employee's pension pay out on grounds that his mismanagement of stocks had caused losses of more than R2,7-million has been ordered by the Pension Funds Adjudicator to pay the withdrawal benefit.

The employee lodged a complaint with the Office of the Pension Funds Adjudicator, denying that his actions as a project manager for the second respondent were negligent and the direct cause of the losses as submitted by the respondents..."

Read the full article and the ruling of the Pension Fund Adjudicator on this case in itinews of 3 December 2013, here...

A plea for transparency in pension funds

"In the annual benefit statement of each pension-fund member, there should be disclosed on a single page the dozen largest equity investments held by that fund at its reporting date. This is not merely a suggestion. It's a plea. It's also a proposal that, if not adopted voluntarily, begs being made regulatory. Why? Simply put, there can hardly be a better way for fund members to realise that they have a vested interest in the performance of these companies; and, in turn, on the economic environment where these companies operate. For the members' livelihoods depend on it. So too do the livelihoods of us all..."

Read the full article by Allan Greenblo in Moneyweb of 5 December here...

Media snippets
(for investors and business)

Metals, currency rigging is worse than Libor

"Germany's top financial regulator said possible manipulation of currency rates and prices for precious 's metals is worse than the Libor-rigging scandal, which has already led to fines of about $6 billion...."

Read the full article by Karin Matussek and Oliver Suess in Bloomberg News of 17 January 2014 here...

Investing off-shore: is it too late?

"To make an assessment of whether now is still a good time to invest offshore one has to consider the fundamentals of the SA currency, global equity fundamentals and global economic fundamentals, says Thomas Schlebusch, CIO at Sanlam International Investments..."

Read the full article by Sasha Planting in Moneyweb of 17 January 2014 here...

Debunking the weak-rand-boosts-SA myth

In this interview by Hilton Tarrant with Mike Schüssler, chief economist at economists.co.za, Mike Schüssler, presents his view why a weak Rand will not boost the SA economy.

Read the full interview in Moneyweb of 15 January 2014 here...

Expect growth but don't be over ambitious

"One of the unfortunate themes of 2014 will be that the Rand will probably continue its poor performance and could come in at levels close to R12.50 to the US Dollar. But while many see this as a challenge, Econometrix Director Dr Azar Jammine feels that this presents South Africa with a unique opportunity."

"While the Rand is set to depreciate, exports will increase. This can only benefit the country as it has quite a substantial current account deficit which has been caused by imports exceeding exports," says Jammine.

Read the full article by Jonathan Faurie in FANews of 14 January 2014 here...

Turning back time: ageing reversed in mice

If retirement planning and provision has been tricky up to now, and becomes ever more tricky in the face of ever increasing longevity, where will we be if scientists are able to stop us from ageing?

"A team that has identified a new way in which cells age has also reversed the process in old mice whose bodies appear younger in several ways. The discovery has implications for understanding age-related diseases including cancers, neurodegenerative disorders and diabetes..."

Read this article by Laasya Samhita in New Scientist of 19 December 2013 here...

Africa's Namibia is now rated fourth globally in terms of house price increases
A headline in Wall Street Journal of 19 December 2013.

This article was passed on to us for sharing with our readers. Download it here...

And finally...

"In a country well governed, poverty is something to be ashamed of, in a country badly governed, wealth is something to be ashamed of." ~ Confucius
 

Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.