Blue Chip Issue 90

BLUE
CHIP
On the money
Making waves this quarter
New appointment and the paradox of choice
ALEXFORBES APPOINTS MPHO MOLOPYANE AS CHIEF ECONOMIST
Alexforbes is pleased to announce the
appointment of Mpho Molopyane as chief
economist, effective from December 2023.
Molopyane is responsible for formulating
the macroeconomic strategy for the business.
Molopyane also has a pivotal role in
executing strategic objectives that align with
the group’s vision.
Molopyane brings with her a wealth
of experience and expertise acquired
through her extensive career in both
the finance and public sectors. She joins
Alexforbes from Absa, where she held the
position of senior economist, overseeing
economic research for multiple African
economies. Prior to her tenure at Absa,
Molopyane served as an economist at Rand
Merchant Bank, with a specific focus on the
South African market.
Her professional background also
includes previous positions at National
Treasury and Standard Bank.
REGULATION 28 AND THE PARADOX OF CHOICE
In 2022, Finance Minister Enoch Godongwana amended the maximum
offshore investment limit for Regulation 28 retirement funds from
30% of assets to 45%. However, data shows that most funds haven’t
maximised their exposure to the new limit.
Currently, there is more value to be extracted in the local market: local
equities are trading on a very cheap forward price-to-earnings multiple of
9x (compared to 17x for developed markets) and underpinned by strong
one-year expected consensus earnings growth of 14% (compared to
7% for developed markets); the local long bond market offers enticing
value, with a more predictable nominal long-term expected yield of 12%
against inflation nudging at 5% and the rand offers a 20% discount to
the fair value range against the US dollar. Conversely, if Regulation 28
funds use their rand income to increase US dollar-denominated assets,
they’re currently paying 20% above the currency’s fair value range.
How do financial advisors prudently assist their clients to navigate
the new Regulation 28 changes? Decision-makers are grappling with
the paradox of choice: the breadth of options increases flexibility, but
it’s more difficult to choose high-quality, consistent winners and blend
them in their appropriate proportions.
It’s most important for managers to have an investment philosophy,
objectives and investment process that are clearly defined. The
investment philosophy should articulate core investment beliefs and
principles of how investment value is extracted and risk-managed,
expected patterns of returns, inputs required and evidence of
repeatable outcomes. Tactical asset allocation and risk management
are key in exploiting short- to medium-term opportunities, as well as
unintended risks.
Managers need to have a solid grasp of their portfolio risk management
on a look-through basis: this allows them to understand exposure from
various perspectives, be more responsive and continually reinvent
themselves as they align portfolios with changing times. Portfolio risk
management can identify and de-risk outsized risk contributions from
geographical and sector exposures. Good managers reduce foreign
currency volatility. Investment firms need to aspire to be great stewards
and fiduciaries with the highest ethics, have an enabling culture and
be aligned with their clients’ interests.
For financial advisors looking to prudently exploit the changes to
Regulation 28, the point of departure is always going to be choosing the
appropriate investment manager(s) who will in turn make appropriate
choices on their behalf.
By Conlias Mancuveni, Hollard Investment Managers