Financially Speaking June 2007

Yesterday is history. Tomorrow is a mystery. And today? Today is a gift. That’s why we call it the present.

Dear Client,

Our town; so quiet this week what with the strikes. I mean, compared to Johannesburg it’s always empty. But still. I understand their motives, if not all methods. I think that there would be enough money for greater state employee increases if we just had a few less large black Range Rover Sports driving around at illegal speeds. And then, as Evita Bezuidenhoud commented recently; “I am impressed with KZN. They have all that stuff about HIV, the homeless, crime etc sorted out so well that they can spend their time and energy and money on street name changes.” Puts it in perspective I suppose. Budgeting and prioritising should happen at all levels. And in my opinion, decent salaries come before street name changes. Anyway, there we have it. My thoughts.

Investment issues

Last week I attended a Marriott Asset Management presentation given by their CEO, Simon Pearce. Very good; both Simon and the presentation. (In discussions with him afterwards, he said to me that he would do a personal presentation to groups of my clients and so I will try this both locally and in Johannesburg.) To his presentation:

His view on local economic indicators:

  • We are in a rising interest rate cycle in South Africa.
  • The average SA household is spending 73% of disposable income on servicing debt.
  • We are at a record high current a/c deficit and if we cannot fund this, the currency will be negatively affected.
  • The record capital inflows into SA in 2006 of R140 billion, can go away in a flash which will put pressure on our currency.
  • SA stocks are overvalued.

That brought him to the main theme of his presentation. Speaking about Marriott’s International Income Growth Fund, which most Marriott investors participate in, in one way or another, and the global economy – with a slant on encouraging us to get clients to invest internationally.

He says that too many investors worry about price growth and not earnings and earnings growth. You’d never invest your capital in a business that did not pay you an income. Capital growth (price growth) will come from income and income growth. So capital growth is a function of earnings growth. Capital can be wiped out, even capital invested in property he says. He went on to give an example of why invest locally in Standard Bank shares that are yielding 2.5% when you could buy Barclays Bank at 9% which also happens to be a much larger bank operating in economies with lower inflation.

He spoke of how Marriott’s International fund is a low risk balanced portfolio with a flexible mandate that does not invest in emerging markets. He told us in depth of the team they work with in the Isle of Mann – an impressive group. He finished by showing us that this fund had done 42% Rand terms to date end March 2007 and was the top performing fund of all local asset swapped foreign funds. Some of you are in this fund via asset swapping and some of you directly via foreign allowances.

Their strategy remain solid: they will not always outperform others, but when price catches up with income; they will probably always be at or near the top. Warren Buffet invests this way. It is a fund that holds ‘Old World’ blue chip stocks and low risk bonds.

Great fund. Great Asset Management Company. OK, OK, so they are taking me to the rugby in Durban next weekend!

Until next time
Regards,
Kevin

P.S. For those of you who receive this by snail-mail and wonder if you missed May’s copy or if that month was cancelled due to lack of interest, no, I missed a publication!

Please note that all the views expressed in this publication are based on my opinion and no action or advice is implied or intended.