Life is that thing that happens while you are living (unknown).
The rugby world cup was a stark reminder of how quickly time flies, it feels just yesterday I was sitting in Brighton watching Japan beat SA and here I am four years later watching the Japanese support South Africa. What it does reinforce in the investment mind is that paying as little interest on purchases and earning annual dividends is crucial to performance.
They say children leave the house but never the wallet, I have experienced this over the past couple of years, and the economic climate and political environment make it increasingly difficult for the youth to become self-sustainable, where am I going with this? I had the privilege of being the joint applicant on a mortgage (bond in SA) application; my daughter is in the process of purchasing a flat in London with the idea that in 30 years this will be a large part of her pension. I chose a 20 year term with 10 year fixed rate of 1.89%, yes you read it correctly 1.89% for first 10 years then floating for last 10.
With interest rates in the developing world this low, how is it that the powers that be cannot get the economies growing but, more importantly, how can South Africa ever get growth going with interest rates so high. Eksdom, corruption and the SMEs are a huge problem, but high interest rates are not helping anyone other than those who are moving money overseas at an ever-increasing rate.
I feel like a broken gramophone, Donald Trump continues to fight with everyone and anyone, yet US markets continue higher while everyone sits underweight waiting for the crash. Every article I read either refers to deflation, recession, trade wars, Brexit, slowing earnings, rates cuts to stimulate and the end of the world as we know it.
Low interest rates definitely help, why hold cash at 0 when you can buy a dividend stock paying 2%, companies can fund buy backs with cheap debt, PE ratios are expanding while earnings contract, growth shares (those who sell hope of being the next best thing) continue to outperform Value (those that are seen to be stable payers but won’t see growth without acquisition).
South African markets have their own structural anomalies, ETF ( global exchange traded funds) are now having more of an effect in market moves than underlying fundamentals, Clicks (a share we are short of) trades on a 35 PE and moves higher as funds allocate passive money to it, (Aspen and Steinhoff had the similar moves when they were in their go-go years), we are not saying clicks is a Ponzi scheme but it currently trades at a 3 times valuation of any other SA retailer which is not sustainable.
Moving into UK property shares has proved quite lucrative but at the same time we missed out on what we feel is the last leg of the resource bull market, Impala platinum which we held at R30 in the beginning of the year is now R104,60% of this move in the last 4 months, Anglo, Amplats, Kumba Iron Ore, Assore and Billiton have had similar outperformance and shows that when funds are underweight a sector topping up to full weight leads to big moves regardless of how irrational they seem.
The World Cup is over, Halloween is done, Guy Fawkes fireworks are popping outside and the first Christmas advert was flighted on UK TV this weekend. Thankyou Boks for showing us a team of underdogs can still overcome the favourites, ‘gees’ is not to be under rated. The Courtney team this quarter feel a bit like the England team did on Sunday, battered, bruised and not sure how the market did what it did. However, as I write the portfolios are up for the year even though we underperformed our benchmark. Protection of your capital is key and we constantly analyse where we failed to spot the gaps. We hope to report outperformance into the new year.
All the Best
Die Courtney Span.