GIB INVESTMENT SUMMIT: The Butterfly Effect. Small Changes, Big Impacts
INTRODUCTION
- Bruce Whitfield
This year’s Summit focused on the transformative relationship between market sentiment and economic optimism, exploring how this interplay can influence investment strategies and inform market navigation. Guided by MC Bruce Whitfield, our speakers and panellists shared insights into leveraging positive sentiment to identify new opportunities and approach the financial landscape with confidence. Their expertise offered attendees valuable perspectives on adapting to market dynamics with agility and foresight. We brought together industry experts, seasoned investors, and thought leaders who shared insights and strategies.
Two-Pot Feedback
- Glenn Gamsy
Glenn Gamsy, MD of GIB Financial Services, provided feedback on the ‘’two-pot’’ system that has been introduced in South Africa. He highlighted that although one-third of a member’s savings is accessible for emergencies through the “two-pot system”, the other two-thirds must now be preserved exclusively for retirement, ensuring long-term savings.
The Retirement Fund industry initially expressed concerns that the SARS system might not be ready in time. However, he explained that 1.2 million claim applications have already been processed, totalling R21 million as of two weeks prior. GIB has experienced 12 times the typical number of claims, with 80% of them paid out, positioning GIB among the top administrators in the market.
Glenn noted that there is concern that allowing early access to retirement funds may negatively affect individuals' retirement outcomes. Many retirees face a low replacement ratio, often struggling to match their pre-retirement income and facing financial insecurity.
Looking ahead, there will be a focus on enhancing member engagement and providing benefit counselling. This will help members understand the implications of their retirement choices, including tax impacts and cash value considerations.
Economic and Market Overview
- Herman Van Papendorp
State of the Market Panel
- Herman Van Papendorp | Chiezda Maziba
The rising cost of electricity has shortened the payback period for capital investment in electricity generation to approximately eight years, a trend expected to continue as prices rise. Meanwhile, South Africa’s credit default swap is now 100 basis points below its March peak. This reflects a reduced SA-risk premium, and optimism for future policy reforms. Additionally, lower inflation and decreasing interest rates are bolstering disposable income, which should improve consumer spending power.
Bruce Whitfield raised concerns over South Africa’s sluggish economic growth, expected to remain below 2% until 2029, significantly trailing broader emerging markets. Current economic growth is around 1%, with projections suggesting a slow increase to 2% next year and potentially 2.5% the following year. Per capita income remains approximately $6,300 - half the global average, which is a 7.59% decrease from 2022. This indicates a need for policy changes.
Herman van Papendorp, Head of Asset Allocation at Momentum, emphasized that without substantial reforms, the system may not provide long-term consumer benefits. The National Development Plan’s target of 30% growth, set in 2010, remains unmet, thus illustrating the gap between economic goals and actual performance. Concerns over energy reliability have led businesses to invest in self-generated capacity. South Africa’s goal to generate 19 GW of renewable energy capacity by 2030 points further to a shift toward sustainability.
Chiedza Madzima, a Senior Director at Fitch Solutions, mentioned that Government inefficiencies have caused frustration, stressing the need for operational improvements. Achieving 3% GDP growth next year appears unlikely unless business and consumer confidence improve. Furthermore, significant challenges remain for economic sustainability and the lack of visible action has dampened businesses' willingness to invest. For reference, approximately 50% of JSE profits are generated by companies primarily operating outside South Africa, highlighting a disconnect between local economic conditions and market performance.
Economic growth is further hindered by weak demand, compounded by policies and political instability. Frequent changes in development plans without effective implementation create confusion around current policies.
The business environment remains challenging, with concerns about South Africa’s ability to support business growth and enable market performance. On the global front, U.S. political changes could impact South Africa’s economy, especially given China’s role as a key trade partner. Herman noted that BRICS, while comprising 40 countries, may be more united by opposition to the U.S. than by a cohesive agenda, raising questions about its effectiveness.
In terms of trade dynamics, Chiedza expressed concerns about South Africa’s alignment with global partners, suggesting that while South Africa claims to be non-aligned, its alliances may not always be favourable in the global context. This raises questions about South Africa’s trade policies and international standing. South Africa’s trade and investment policies have not drawn significant interest from major global investors.
The rigidity of labour market regulations is also seen as an obstacle to business operations, highlighting a need for structural reforms to improve the business environment. Chiedza suggested that South Africa could look to India’s model of geopolitical agility and political stability for inspiration in enhancing trade relations.
Investment challenges in South Africa persist, with operational hurdles limiting business expansion. Herman noted that current investment levels are worryingly low, underscoring the need for industrial production as a foundation for economic growth. A proposal for a one-stop shop for business applications was also discussed, which could streamline processes, expedite investment decisions, and facilitate quicker operational setups.
Local Equity Panel
- Tim Acker | Neville Chester |Chantelle Baptiste | Simon Fillmore | Murray Winckler
The Local Equity Manager panel featured a distinguished lineup moderated by Bruce Whitfield. The panel included Chantelle Baptiste, Equity Portfolio Manager at Fairtree; Murray Winckler, Co-Founder and Portfolio Manager at Laurium; Simon Fillmore, Chief Investment Officer at Independent Securities; Tim Acker, Portfolio Manager at Allan Gray and Neville Chester, Portfolio Manager at Coronation. Bruce opened the session by examining both the similarities and distinctions among the managers’ strategies, noting substantial overlap in their top holdings. As the discussion unfolded, each manager’s unique approach to portfolio construction and investment rationale became evident.
Bruce began by asking Chantelle about Fairtree’s substantial allocations to South African financial services which feature prominently in their top holdings and include companies such as Standard Bank, Sanlam, Nedbank, and FirstRand. Chantelle expressed a cautiously optimistic view of the South African market, suggesting that with a potential 3% GDP growth rate over the next three to five years, South African equities present substantial upside. She clarified, however, that Fairtree’s growth assumptions are moderate, expecting this level of GDP growth only in the medium term. Consequently, Fairtree has avoided small caps, choosing instead to focus on interest-rate-sensitive stocks that may offer more stable returns in the current environment.
Bruce then turned to Simon, observing that Independent Securities’ (ISEC) top holdings were more diversified and included a notable allocation to South African retail and property sectors - industries that have historically posed challenges for investors. Simon explained that ISEC's investment philosophy centres on finding “great companies at the right price,” with a disciplined focus on companies that exhibit strong balance sheets and attractive valuations. He remarked that given South Africa’s relatively small investable universe, some degree of overlap in top holdings across firms is to be expected. However, Simon emphasized that ISEC is confident that their commitment to value-based investing will deliver solid long-term returns, even within sectors that have seen recent struggles.
The discussion highlighted that while the panellists shared a generally positive view of SA equities, their strategies and the timing of anticipated growth diverged based on unique perspectives. Fairtree expressed confidence in larger financial stocks, betting on a gradual economic recovery, while ISEC sees compelling value in retail and property stocks based on balance sheet strength. The panel provided valuable insights into the current strategies of these leading equity managers, underscoring both the opportunities and challenges that lie ahead for South African equities.
Personal finance frameworks
- Victor Bucarizza
Victor Bucarizza presented the audience with his take on the world of personal finance. To begin with, he demonstrated his belief in the various dimensions of money – from what we earn and spend, to what we invest and borrow.
Thereafter, he went through the seven steps of personal finance – all the way from being financially reliant towards being in financial abundance. Moreover, he spoke to the layers of a financial plan. Victor broke these layers down into three categories; Structuring – this is how we own our investments, it determines taxation and liquidity etc. Secondly, he spoke to asset allocation (Beta) – this is what we own, and it determines the bulk of our return. Lastly, strategy selection (Alpha) - this relates to who runs our investment, in attempting to gain excess returns above the relevant asset class.
He mentioned how through various Living Annuity strategies, specific Policy Wrappers, and specialised income stacking, one can be assisted with estate duty taxes and inheritance payouts.
Lastly, the importance of the compounding affect was delved into. It was concluded that the length of time within an investment is the most important variable.
Alternative Investment Panel
- Dino Zucollo | Clarissa Van Der Westhuyzen |Clarissa Van Der Westhuyzen
The Alternative Investments panel featured Westbrooke's Dino Zuccollo (Head of Investor Solutions and Director), Fairtree's Clarissa Van Der Westhuyzen (Equity Portfolio Manager), and Grovest’s Tivon Loubser (TwelveB Specialist). The discussion was moderated by Bruce Whitfield.
Bruce Whitfield opened the conversation by asking, "How do alternative investments differ from traditional investments?" The panel collectively emphasized that alternative investments differ from traditional investments in several key aspects, including asset types, liquidity, risk profiles, and return potential. While traditional investments typically consist of stocks, bonds, and cash equivalents, alternative investments encompass a broader range of assets such as private equity, hedge funds, real estate, commodities, infrastructure, venture capital, and collectibles like art and wine. These assets often provide diverse return sources and exhibit low correlation with traditional markets, adding distinct value to an investment portfolio.
Liquidity is a notable distinction from traditional investments. Stocks and bonds are generally highly liquid and easily traded on public markets. In contrast, alternative investments, such as real estate or private equity, are often illiquid, requiring a longer-term commitment. They lack the flexibility for quick sales without potential losses. This illiquidity, while presenting higher risks, can also shield investors from daily market fluctuations, offering a buffer against volatility.
Risk and return profiles also set alternatives apart from traditional investments. These investments typically involve higher risk due to their complexity, higher fees, and limited liquidity. However, they offer the potential for greater returns and serve as a hedge against broader market movements, making them attractive to investors seeking meaningful portfolio diversification. Alternatives often require specialized expertise and due diligence as they are usually only accessible to accredited or institutional investors due to regulatory restrictions and high minimum investment thresholds.
Market correlation further differentiates these asset classes. Traditional investments are closely linked to market trends and economic cycles, whereas alternative investments often exhibit low or even negative correlation with stocks and bonds. This characteristic enhances diversification and risk management within a portfolio. Moreover, performance drivers differ; traditional investments are influenced by macroeconomic factors and corporate earnings, while alternatives derive value from unique sources such as real asset appreciation, private market dynamics, or strategic management within hedge or private equity funds.
In summary, alternative investments present a compelling, albeit complex, addition to a portfolio. They offer unique benefits, including enhanced diversification, reduced correlation with traditional markets, and potentially higher returns. However, these advantages come with added complexity, risks, and the need for careful consideration and expertise.
Summary
In summary, GIB’s 2024 Investment Summit offered valuable insights into the relationship between market sentiment and economic optimism, highlighting its significance for today’s investment strategies. From Financial Planning to ‘Two-Pot feedback,’ guests were provided with the latest insights into the local and global economic landscape. GIB Financial Services brought forth yet another successful Summit, underpinned by carefully curated content and material.
We grow your wealth by combining active and passive management in an innovative matrix. GIB has been able to continues to deliver while reducing costs and increasing efficiency. Grow you wealth today
Learn more