Addicted to Honour of Kings or League of Legends? Yes? Your gaming compulsion may very well have contributed to the recent uptick in the SA equity market! The JSE ALSI finally appears to have broken out of its three-year trend of going nowhere, with the stock market up a satisfactory 12.4% over the year to the middle of September.
However, it is important to note that these gains were not broad-based. Naspers, the largest JSE-listed company, gained a whopping 46% over the same period, thanks to its shareholding in Tencent, the Chinese internet and gaming giant. A significant chunk of Tencent’s revenues comes from just those two games – Honour of Kings and League of Legends. Like many online games, they make money not (just) from advertising, but by enticing players to buy boosters to help them move up levels as they get increasingly difficult.
A 5% holding in Naspers would have provided a decent kicker to overall equity portfolio performance in recent years – it would have added 2.3% over the year to mid-September, 1% over one year and 1.4% per annum over three years. A note of caution however – be careful not to extrapolate high growth into perpetuity. Remember that ten years ago, Nokia had a billion customers and ruled the world of mobile phones!
The surge in technology stocks has not been limited to Naspers. The tech holdings in the Investec Global Franchise Fund, which include Microsoft, Visa and Checkpoint, have also been strong contributors to the overall performance in the fund, in some cases beating Naspers over longer periods. In this edition of Taking Stock, we look at Microsoft and Visa in a little more detail. We also visually set out how much we interact with many of the top holdings of the Global Franchise Fund on a daily basis.
We have devoted many column inches in recent issues to the importance of staying the course. Every so often it is important to refocus on the role good financial advisors can play in helping their clients achieve their financial goals and what tangible value they add.
Numerous studies show that most investors, if they were left to their own devices, tend to err on the conservative side and would very rarely consider their investment horizon based on their actual needs. With no guidance they are very likely to invest in multi-asset low equity or income funds, targeting returns of CPI + 2% and CPI + 3% over the long term, which would leave them seriously wanting at retirement. Our calculations show that this could mean them retiring with half the income levels that they actually require at retirement.
Equally important is the fund choice within these categories. An analysis of fund data over fifteen years reveals a big spread of returns in each of the fund categories. The spread between the best and worst performing funds in the multi-asset high equity sector is a significant 4.3% per annum. To put this in perspective, if clients chose the correct risk/return profile, they could still halve the income level if they select the wrong fund in the sector. Choosing the right investment manager and staying the course with your investments could therefore also add significant value over the long term. We discuss this further in the article “Destroying value by chasing performance.”
There is no denying then that correctly identifying an investor’s risk profile and choosing the appropriate funds can add significant value, albeit at a fee. Clearly, most investors would be happy to pay appropriate charges if it meant they were getting an additional 2-3% of return every year. Responsible and professional financial advice is critically important, so never underestimate your role.
Finally, many people question when they should invest. At any given time, there is only one answer – the time to invest is now. The real question is: Where are the opportunities? As investment managers, we believe identifying those opportunities is where we really add value.
Thank you for your continued support.
All information provided is product related, and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. Collective investment scheme funds are generally medium to long term investments and the manager, Investec Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing, up to 10% of fund net asset value to bridge insufficient liquidity, and scrip lending. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The fund is a sub-fund in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and is approved under the Collective Investment Schemes Control Act. Additional information on the funds may be obtained, free of charge, at www.investecassetmanagement.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. The scheme trustee is FirstRand Bank Limited, PO Box 7713, Johannesburg, 2000, Tel: (011) 282 1808. Investec Asset Management (Pty) Ltd (“Investec”) is an authorised financial services provider and a member of the Association for Savings and Investment SA (ASISA). Issued by Investec Asset Management, October 2017.