The Coronation Client Charter - We strive to always put clients first We have an unwavering commitment to the long term We focus on producing top ...
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The Coronation Client Charter We strive to always put clients first We have an unwavering commitment to the long term We focus on producing top performance over all meaningful periods We are uncompromising about ethics
Financial planning challenges in 2019 January 2019 A presentation prepared for the Allan Gray Fund Provider roadshow
FINANCIAL PLANNING CHALLENGES Regulatory environment Disappointing returns Growth-asset dilemma Retirement crunch Looking forward
How was your year? 5
At least the bitcoin noise has gone away 6 Source: CNBC
Regulatory environment in 2019
So, what’s changed in your business?
SELECTED REGULATORY INTERVENTIONS, 2001-2019
2001 CGT introduced in SA
2002 CISCA More powers to the FSB to make rules FAIS Fit & proper, compliance, exams , ombud
2003 TER Total expense ratio disclosure introduced
2004 Retirement reform DP Reduce costs, increase access FSC Voluntary empowerment framework agreed
2005 FAIS New rules for compliance & auditor reporting to FSB
2006 FAIS Fit & Proper requirements tightened up
2007 Retirement fund reform NSSF formally on the agenda
2008 GFC Global Financial Crisis leads to step-change in regulatory intent
2009 FAIS PI cover requirements tightened up FAIS Capital adequacy rules expanded
2010 Reg 28 overhauled; requires member-level compliance Retirement fund reform Industry consolidation process starts
2011 Red Book Initiative New regulatory framework proposed Living annuities Disclosure campaign to make DDs more sustainable CISCA First regulations for white-labelled funds
2012 Retirement fund reform NSSF DP published Retirement fund reform Phasing out of provident funds proposed
2013 Retirement fund reform 4x detailed Treasury DPs BBBEE Act adopted: Generic codes now binding DWT Introduction of divdend withholding tax announced
2014 Retail Distribution Review First DP published Retirement fund reform Cap on contr. deduction introduced TCF DP launched introducing outcomes principles
2015 TFSA/TFI New tax-free savings vehicle introduced Retirement fund reform Phasing out of provident funds postponed CISCA Hedge funds declared CIS
2016 Retirement fund reform 2012 NSSF DP issued 2nd time Retirement fund reform Phasing out of provident funds postponed EAC Industry-wide standardised total cost of ownership disclosure
2017 Parliamentary hearings on transformation Retirement fund reform Phasing out of provident funds postponed FAIS New Fit & Proper Rules FSC Revised BEE code adopted
2018 FSR Sets framework for FSCA & PA Retirement fund reform Phasing out of provident funds postponed FAIS New General Code of Conduct
2019 Retirement fund defaults Effective March 2019 COFI Draft bill circulated for comment RDR Awaiting DP on categorisation of advisers, investment issues
8Retirement fund defaults
Becomes effective 1 March 2019
– Member guidance
• Tell members what their options & trade-offs are before they access their retirement capital
• Likely written / web-based communication as the most typical option
– Trustee-endorsed opt-in annuity strategy
• FSCA Conduct Standard for Living Annuities
• Requirements: Suitable, reasonable cost
• Prescribed, age-related drawdown rates
• Member opts out by
• Transferring
• Choosing own drawdown or assets
• Likelihood is that most trustees will implement
conservatively
9Source of current financial planning anxiety
Annus horribilis
2018 was the worst year on record – even worse than 1920
63 of 70 assets globally ended with negative dollar returns
Only 7 assets with positive returns Percentage of assets with a negative return in US dollar terms
– T-Bills
– China, US, Korea, Japan and Thailand bonds
– Wheat (only commodity)
Not a single equity market had a positive return
11 Source: Deutsche Bank (end 2018)We are on the verge of making history
We are 6 months
away from testing
zero…
BEAR MARKET OF
THE 70s
WEAK MARKET OF
EARLY 90s PRE
DOMESTIC
DEMOCRACY
EM CRISIS RECESSION FINANCIAL CRISIS
Rolling 5 year SA equity returns
12Negative returns were broad-based
Only resources provided any reprieve
Naspers Ltd -16%
BHP Group PLC 28%
Compagnie Financiere Richemont -15%
Anglo American Plc 32%
Sasol Ltd 2%
Standard Bank of SA Ltd -4%
Firstrand Limited 2%
MTN Group Ltd -31%
Mondi 3%
Sanlam -5%
British American Tobacco Plc -40%
Absa Group Ltd -5%
Nedbank Group Ltd 13%
Remgro Ltd -15%
Shoprite Holdings Ltd -12%
BID CORP LTD -10%
Vodacom Group -3%
ANGLOGOLD ASHANTI HOLDINGS 42%
Bidvest Group Ltd -3%
Growthpoint Properties Ltd -9%
Mr Price Group Ltd 4%
Capitec Bank Holdings Ltd 4%
RMB Holdings Ltd 4%
Discovery Holdings Ltd -13%
Woolworths Holdings Ltd -12%
Investec Plc -7%
Redefine Income Fund -1%
Aspen Phamacare Holdings Ltd -50%
Clicks Group Ltd 8%
Sappi Ltd -6%
Tiger Brands Ltd -39%
Spar Group Ltd 6%
PSG Group -8%
Gold Fields Limited -7%
Netcare Ltd 9%
NEPI Rockcastle PLC -44%
The Foschini Group Ltd -12%
Truworths International Ltd -2%
Life Healthcare Group Holdings 0%
Exxaro Resources Ltd 0%
AVI Limited -2%
Fortress REIT Ltd -35%
Anglo American Platinum Ltd 55%
Reinet Investments Sca -19%
RMI Holdings -18%
Glencore Xstrata Plc -13%
Impala Platinum Holdings Ltd 13%
Barloworld Ltd -26%
Investec Ltd -7%
Pick N Pay Stores / Holdings 0%
-60% -40% -20% 0% 20% 40% 60% 80%
Top 50
13 Source: Bloomberg (end 2018)Rand cost averaging
Rand cost averaging: the positive side to lower prices
A 20-year study
0,020 Number of shares that R100 p.m. can buy on the JSE
0,018
0,016
0,014
0,012
0,010
0,008
0,006
0,004
0,002
0,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
15 Source: Bloomberg, Coronation Research as at 31 December 2018Rand cost averaging: the positive side to lower prices
A 20-year study
70000 Investing monthly
Average cost paid for the market vs market price
60000
50000
40000
30000
20000
10000
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Market Average Cost
16 Source: Bloomberg, Coronation Research as at 31 December 2018Rand cost averaging: the positive side to lower prices
A 20-year study
140000
How much was invested vs how much it’s worth
120000
100000
80000
60000
40000
20000
0
Portfolio Growth Amount invested
17 Source: Bloomberg, Coronation Research as at 31 December 2018Rand cost averaging: the positive side to lower prices
A 20-year study
500% Percentage Change on Invested Capital
450%
400%
350%
300%
̴ 4 years
250%
200%
150%
100% ̴ 4 years
50%
̴ 4 years
0%
18 Source: Bloomberg, Coronation Research as at 31 December 2018Growth asset dilemma
An inverted risk curve
The recent past vs the LT history
14%
14%
12% Balanced
Coronation Balanced Plus
Plus
12%
Coronation Balanced Defensive
Coronation Capital Plus
CoronationStrategic
Coronation StrategicIncome
Income Balanced Defensive
A Coronation Capital Plus
Strategic Income
Coronation Strategic Income
10%
10%
Strategic Income Capital Plus
8%
Coronation Balanced Defensive
Coronation Strategic Income
6% Strategic Income A
Balanced Defensive
Coronation Capital Plus
4% 2018
Coronation Balanced Defensive Coronation Balanced Plus 2016
Capital Plus
2% A 10 Year
Balanced Defensive Balanced Plus
0%
0%
0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00%
Coronation Capital
Capital Plus
Plus
-2%
-2%
-4%
-4%
INDUSTRY SWITCHING DOWN THE RISK CURVE Coronation Balanced PlusPlus
Balanced
-6%
-6%
-8%
-8%
20 Source: Morningstar, as at 31 December 2018Meeting financial planning assumptions
Coronation Balanced Plus to 31 December 2018
16%
45% of the time
Avg fund: 27% of the time
14%
75% of the time
Avg fund: 57%
12%
10%
8%
6%
4%
2%
0%
2014 2013 2012 2011 2010 2009
Actual return Required return to make 10 year assumption Required return to make 20 year assumption
21 Source: Morningstar, Coronation research as at 31 December 2018Coronation Balanced Plus – absolute terms
# of Subsequent Subsequent Subsequent
Start End drawdown
Months 1 year 3 years
3 years
(p.a) 5 years
5 years
(p.a)
Largest
May 1998 Aug 1998 4 -34,3% 29,1% 68,9%
19,1% 94,4%
14,2%
drawdown
2nd largest
Nov 2007 Feb 2009 16 -16,8% 34,7% 71,8%
19,8% 154,5%
20,5%
drawdown
3rd largest
June 2002 March 2003 10 -12,2% 35,7% 156,5%
36,9% 246,1%
28,2%
drawdown
4th largest
Feb 2000 May 2000 4 -8,8% 24,9% 34,8%
10,5% 132,9%
18,4%
drawdown
5th largest
Sep 2018 Dec 2018 4 -7,8%
drawdown
Average 11 -16,0% 24,9% 66,4%
21,6% 125,6%
20,3%
22 Source: Morningstar, Coronation ResearchCoronation Top 20 – relative to benchmark
# of Relative to Subsequent 1 Following 3 Following 5
Start End
Months benchmark year relative years relative years relative
Largest
Feb 2007 June 2008 17 -25,7% 30,2% 48,7% 72,9%
drawdown
2nd largest
Oct 2013 Dec 2015 27 -22,9% 14,3% 9,3%
drawdown
3rd largest
Sep 2005 Sep 2006 13 -14% 4,2% 34,1% 48,4%
drawdown
4th largest
Nov 2017 Dec 2018 14 -7,4%
drawdown
5th largest
Sep 2009 Nov 2009 3 -5,9% 5,2% 11,3% 25,2%
drawdown
Average 15 -15,2% 13,5% 25,9% 48,8%
23 Source: Morningstar, Coronation ResearchRetirement crunch
25
But the birthdate lottery made things challenging
6% initial drawdown increasing at 6% p.a. (5 years)
26 Source: Morningstar, Coronation Research, as at 31 December 2018Remember the birthdate lottery? Slide from 2014
Looking forward – all is not lost
Changing your risk profile could exacerbate the issue
28 Source: Morningstar, Coronation Research, as at 31 December 2018Looking forward – all is not lost
Changing your risk profile could exacerbate the issue
Forecast assumptions
Capital Plus: 12% p.a.
Strat Income: 8% p.a.
29 Source: Morningstar, Coronation Research, as at 31 December 2018How achievable is 11%+ in a post-retirement portfolio?
Mid-point assumptions
Expected asset Assumed net
Asset class Weight Alpha
class return return
SA equities & property 40% 10,5% 2,5% 13%
Fixed interest 35% 8% 1% 9%
Offshore 25% 8% 2% 10%
Total 100% 11%
30How achievable is 11%+ in a post-retirement portfolio?
Upper-end assumptions
Expected asset Assumed net
Asset class Weight Alpha
class return return
SA equities & property 40% 12% 2,5% 14,5%
Fixed interest 35% 9% 1% 10%
Offshore 25% 9% 2% 11%
Total 100% 12%
31Looking forward
33
50
75
100
125
150
175
200
225
250
Dec 2010
Feb 2011
Apr 2011
Jun 2011
Aug 2011
Oct 2011
Dec 2011
Feb 2012
Apr 2012
Jun 2012
Source: Bloomberg, as at 31 December 2018
Aug 2012
Oct 2012
Dec 2012
Feb 2013
Apr 2013
Jun 2013
Aug 2013
Oct 2013
Dec 2013
Feb 2014
Apr 2014
Jun 2014
Aug 2014
Oct 2014
Dec 2014
Feb 2015
Apr 2015
Jun 2015
Aug 2015
Oct 2015
Dec 2015
Feb 2016
Apr 2016
Jun 2016
Aug 2016
Oct 2016
Dec 2016
Feb 2017
Apr 2017
Jun 2017
Aug 2017
Oct 2017
Dec 2017
Relentless sideways grind in hard currencies...
Feb 2018
Apr 2018
Jun 2018
Aug 2018
Oct 2018
Dec 2018
ALSI (ZAR)
ALSI (USD)…has resulted in significant opportunities 34
History shows that this is a good time to invest
Coronation Balanced Plus total return over 12 months based on starting PE
50% 100
45%
80
40%
35% 60
30%
40
25%
20
20%
15% 0
10%
-20
5%
0% -40
7.5-10 10-12.5 12.5-15 15-17.5 above 17.5
Mean Maximum # Observations
35 Source: Bloomberg, as at 31 December 2018History shows that this is a good time to invest
Coronation Balanced Plus total return over 60 months based on starting ALSI PE
30% 100
90
25%
80
70
20%
60
15% 50
40
10%
30
20
5%
10
0% 0
7.5-10 10-12.5 12.5-15 15-17.5 above 17.5
Mean Maximum # Observations
36 Source: Bloomberg, as at 31 December 2018Valuation is strongly on your side
P/E’s and Dividend yields are crude measures of value, but they give one a sense
Upside to PE 3 years
Name FPE FDY
fair value ago
British American Tobacco 83% 8.0 8.3% 16.1
Naspers 74% 16.5 n/a 32.0
Anheuser Busch Inbev 45% 14.4 2.9% 22
Northam 104% 10.0 n/a 12.1
Anglo American 46% 9.1 4.5% n/a
Aspen 80% 8.3 2.5% 16.1
37Conclusion
The 2019 challenge is dominated by low returns of the recent past.
Financial planning assumptions are under water.
With low returns and failed financial planning assumptions come difficult client conversations and
increased behavioral risks.
You do not require heroic returns going forward to get back on track.
It is tough, but there are silver linings to focus on.
38Thank you
DISCLAIMER
All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. As a result thereof, there may be limitations as to the
appropriateness of any information given. It is therefore recommended that the client/potential investor first obtain the appropriate legal, tax, investment or other professional advice and formulate an
appropriate investment strategy that would suit the risk profile of the client/potential investor prior to acting upon information. Neither Coronation Fund Managers Limited, Coronation Management
Company (RF) (Pty) Ltd nor any other subsidiary of Coronation Fund Managers Limited (collectively “Coronation”) is acting, purporting to act and nor is it authorised to act in any way as an advisor.
Coronation endeavours to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the
information and opinions. Coronation does not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate.
Any representation or opinion is provided for information purposes only. Unit trusts should be considered a medium- to long-term investment. The value of units may go down as well as up, and is
therefore not guaranteed. Past performance is not necessarily an indication of future performance. Unit trusts are allowed to engage in scrip lending and borrowing. Performance is calculated by
Coronation for a lump sum investment with income distributions reinvested. All underlying price and distribution data is sourced from Morningstar. Performance figures are quoted after the deduction of
all costs (including manager fees and trading costs) incurred within the fund. Note that individual investor performance may differ as a result of the actual investment date, the date of reinvestment of
distributions and dividend withholding tax, where applicable. Where foreign securities are included in a fund it may be exposed to macroeconomic, settlement, political, tax, reporting or illiquidity risk
factors that may be different to similar investments in the South African markets. Fluctuations or movements in exchange rates may cause the value of underlying investments to go up or down. The
Coronation Money Market fund is not a bank deposit account. The fund has a constant price, and the total return is made up of interest received and any gain or loss made on any particular instrument, in
most cases the return will merely have the effect of increasing or decreasing the daily yield, but in the case of abnormal losses it can have the effect of reducing the capital value of the portfolio. Excessive
withdrawals could place the fund under liquidity pressures, in such circumstances a process of ring-fencing of redemption instructions and managed pay-outs over time may be followed. A fund of funds
invests in collective investment schemes that levy their own fees and charges, which could result in a higher fee structure for this fund. A feeder fund invests in a single fund of a collective investment
scheme, which levies its own charges and could result in a higher fee structure for the feeder fund. Coronation Management Company (RF) (Pty) Ltd is a Collective Investment Schemes Manager approved
by the Financial Services Board in terms of the Collective Investment Schemes Control Act. Unit trusts are traded at ruling prices set on every trading day. Fund valuations take place at approximately
15h00 each business day, except at month end when the valuation is performed at approximately 17h00 (JSE market close). Forward pricing is used. Additional information such as fund prices, brochures,
application forms and a schedule of fund fees and charges is available on our website, www.coronation.com. Coronation Fund Managers Limited is a Full member of the Association for Savings &
Investment SA (ASISA). Coronation Asset Management (Pty) Ltd (FSP 548) and Coronation Investment Management International (Pty) Ltd (FSP 45646) are authorised financial services providers.
40FAIS REQUIREMENTS CORONATION ASSET MANAGEMENT (PTY) LTD Registration No. 1993/002807/07 Herein after referred to as ‘Coronation’ INFORMATION IN TERMS OF THE FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT Coronation is a licensed Category II and Category IIA Financial Services Provider in terms of section 8 of the Financial Advisory and Intermediary Services Act 37, 2002 (licence number 548). Coronation is not authorised to provide advice in terms of the Financial Advisory and Intermediary Services Act 37, 2002. Coronation has been authorised to render discretionary intermediary services. Coronation is authorised to provide financial services for the following financial products: Long-Term Insurance : Category C; Pension Funds Benefits (excluding retail pension benefits); Securities and Instruments : Shares; Securities and Instruments : Money market instruments; Securities and Instruments : Debentures and securitised debt; Securities and Instruments : Warrants, certificates and other instruments; Securities and Instruments : Bonds; Securities and Instruments : Derivative instruments; Participatory interests in Collective Investment Schemes; Short Term Deposits; Long Term Deposits Coronation is a licensed Hedge Fund Financial Services Provider. The following exemptions are applicable to the licence: Exemption of investment managers and linked investment services providers and their related functionaries from fit and proper requirements (Board Notice 97 of 2003). Exemption of financial services providers as regards to representatives (Board Notice 95 of 2003). The following employees have been appointed as Key Individuals and/or Authorised Representatives: Key individuals Anton Pillay; Karl Leinberger; Kirshni Totaram; Neville Chester; John Snalam; Louis Stassen; Llewellyn Smith Authorised representatives Adrian van Pallander; Hendrik Groenewald; Alistair Lea; Karl Leinberger; Anton de Goede; Kirshni Totaram; Pranay Chagan; Quinton Ivan; Charles de Kock; Sarah-Jane Morley (married Alexander); Dirk Kotzé; Sean Morris; Duane Cable; Mark le Roux; Louis Stassen; Neill Young; Siphamandla Shozi; Gavin Joubert; Neville Chester; Stephen Peirce; Pallavi Ambekar; Suhail Suleman; Peter Leger; Tracy Burton; Nishan Maharaj; Nicholas Hops; Steve Janson; Mauro Longano; Harry Moolman; Alex Dearman; Gus Robertson; Sinovuyo Ndaleni (supervised), Greg Longe (supervised); Adrian Zetler; Kanyane Matlou (supervised); Neil Padoa (supervised); Nicholas Stein; Anthony Gibson, Seamus Vasey (supervised), Liesl Abrahams (supervised); Steven Barber (supervised); Humaira Surve (supervised); Godwill Chahwahwa; Joseph Taboola (supervised) All Key Individuals and Representatives meet the fit and proper requirements as set out in the Board Notices to the Financial Advisory and Intermediary Services Act 37, 2002. Coronation holds professional indemnity and fidelity insurance cover as stipulated in the General Code of Conduct and Board Notices to the Financial Advisory and Intermediary Services Act 37, 2002. Coronation accepts responsibility for its actions and the actions of its authorised representatives in rendering the financial services. Any information disclosed to any of Coronation’s Authorised Representatives in their professional capacity will be treated as confidential unless written consent is obtained to disclose such information, or the disclosure of such information is required in the public interest or under a particular law. The appointed Compliance Officers are: Jamie Rowland Stephan Kemp Tel: 021 680 2809 021 680 7703 Fax: 021 680 2859 021 680 7753 Cell: 082 434 4622 082 351 2401 E-mail: jrowland@coronation.com skemp@coronation.com Coronation’s Conflicts of Interest Management Policy, in terms of General Code of Conduct Regulations issued in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002, is available on Coronation’s website, www.coronation.com, or on request from the Compliance Officer. All complaints are taken seriously and Coronation’s aim is to ensure that all complaints are investigated and addressed in a timely and fair manner. To lodge a complaint, please contact either your Fund Manager or one of the compliance officer’s listed above. 41
FAIS REQUIREMENTS CORONATION INVESTMENT MANAGEMENT INTERNATIONAL (PTY) LTD Registration No. 2014/111656/07 Herein after referred to as ‘Coronation’ INFORMATION IN TERMS OF THE FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT Coronation is a licensed Category II Financial Services Provider in terms of section 8 of the Financial Advisory and Intermediary Services Act 37, 2002 (licence number 45646). Coronation is not authorised to provide advice in terms of the Financial Advisory and Intermediary Services Act 37, 2002. Coronation has been authorised to render discretionary intermediary services. Coronation is authorised to provide financial services for the following financial products: Long-Term Insurance : Category C; Pension Funds Benefits (excluding retail pension benefits); Securities and Instruments : Shares; Securities and Instruments : Money market instruments; Securities and Instruments : Debentures and securitised debt; Securities and Instruments : Warrants, certificates and other instruments; Securities and Instruments : Bonds; Securities and Instruments : Derivative instruments; Participatory interests in Collective Investment Schemes; Short Term Deposits; Long Term Deposits The following exemptions are applicable to the licence: Exemption on Services under Supervision in terms of Requirements and Conditions obtaining experience (Board Notice 104 of 2008). Exemption of licensees as regards display certified copies of licenses (Board Notice 40 of 2004). The following employees have been appointed as Key Individuals and/or Authorised Representatives: Key individuals Louis Stassen Authorised representatives Louis Stassen; Gus Robertson; Gavin Joubert; Karl Leinberger; Kirshni Totaram; Peter Leger; Stephen Peirce; Suhail Suleman; Greg Longe (supervised); Neil Padoa (supervised); Anthony Gibson, Liesl Abrahams (supervised); Steven Barber (supervised) ; Humaira Surve (supervised) All Key Individuals and Representatives meet the fit and proper requirements as set out in the Board Notices to the Financial Advisory and Intermediary Services Act 37, 2002. Coronation holds professional indemnity and fidelity insurance cover as stipulated in the General Code of Conduct and Board Notices to the Financial Advisory and Intermediary Services Act 37, 2002. Coronation accepts responsibility for its actions and the actions of its authorised representatives in rendering the financial services. Any information disclosed to any of Coronation’s Authorised Representatives in their professional capacity will be treated as confidential unless written consent is obtained to disclose such information, or the disclosure of such information is required in the public interest or under a particular law. The appointed Compliance Officers are: Jamie Rowland Stephan Kemp Tel: 021 680 2809 021 680 7703 Fax: 021 680 2859 021 680 7753 Cell: 082 434 4622 082 351 2401 E-mail: jrowland@coronation.com skemp@coronation.com Coronation’s Conflicts of Interest Management Policy, in terms of General Code of Conduct Regulations issued in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002, is available on Coronation’s website, www.coronation.com, or on request from the Compliance Officer. All complaints are taken seriously and Coronation’s aim is to ensure that all complaints are investigated and addressed in a timely and fair manner. To lodge a complaint, please contact either your Fund Manager or one of the compliance officer’s listed above. 42
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