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.

Trump, Trade Wars, Tariffs, Tanker attacks all that’s missing are tidal waves and tsunamis.
Given all the T’s one cannot help but think the final T will be tears, yet still the USA powers
higher on cheap money and central bankers promising to do all it takes to provide liquidity.

The quarter has been characterized by illiquidity and volatility, JSE volumes have halved as
asset managers sit on their hands hoping to be the first to react when things normalize. The
SAFEX open interest which topped at 260 thousand contracts in 2017 now only has 75
thousand. The Rand had four moves over 6%, two of these moves happening in under five
days. (Currency traders are crying over this, but when I tell them a 10% move in a day for a top
100 JSE share is becoming the new norm they realize their lives are sheltered).

This quarter saw moves over 5% on a day in 21 of the top 40 shares listed on the JSE, this is
neither rational nor sustainable and the biggest issue is that the next day the stocks reversed on
no new news flows. Algorithms search for the volume and sell or buy until they find it, the
moves have very little to do with fundamentals and reality.

Willem and I have always had the mantra that in the SA markets someone else always knows
and when seeing big moves its best not to second guess or be arrogant and believe you know
more, this means we have missed some opportunities but at the same time we have not risked
the portfolios having possible big write-downs. (Steinhoff, CIL, Aspen, Brait and Tongaat have
taught many a newbie that pride comes before a fall).

Looking forward we believe SA small caps are becoming incredibly cheap, unlisted shares are
now trading at higher multiples than the listed ones. The biggest issue however is after entering
a trade how does one exit and in the case of small caps we can only see MBO or corporate action
as the solution. We have allocated a small portion of the portfolios to these opportunities in the
belief that offers to minorities are the next step.

UK property shares have been decimated in the wake of Brexit and the Amazon effect killing the
high street, some of these are now 80% off their highs and we are upping our exposure to these
too. The yields are high for a hard currency asset and the discount to NAV they trade at. Even if
NAV is over stated it still makes them a low risk annuity income stream.

The winter solstice has come and gone; before we know it Christmas will be upon us. Let’s hope
the markets deliver the portfolios some early presents.

All the best.

Arthur & Team