Money Marketing Dec 2015
2015 was certainly a year with a lot of character. Whether it was protesting students, rowdy parliamentary disruptions, China’s slowdown, a crisis in Greece or finding water on Mars; the past 12 months have been exceptionally eventful. Here in SA we started the year with electricity woes, and ended the year with water woes. Kim Hubner, business development manager at Laurium Capital, reflects on 2015’s significant moments.
Markets were incredibly volatile in 2015.
Investors had good returns in some months and sharp losses in other months. Year to date (11 November) the local market is up 8.9% in rand. Financials and industrials have been strong, resources have not – at mid November resources were down 26%. Hedge fund managers have many more tools to manage risk and volatility and most have provided decent risk adjusted returns in these markets. Our Laurium Long Short fund has beaten the market by almost 2% per year after fees since inception with half the volatility. Africa, excluding South Africa, has been incredibly tough in 2015 with some funds (not the Laurium fund) losing as much as 25% in USD. Two big happenings of the year were the SAB Miller deal, and the MTN fine – which is unprecedented. The MTN story has shown us that investing in Africa can be risky – and investors looking at the continent and specific countries are now likely to demand an even greater risk premium before allocating funds.
The rand fell to new lows against the US dollar.
Fortunately local investors have some protection against the currency via rand hedge stocks as there are numerous JSE-listed companies that are dominated by offshore operations, or which produce goods or services whose prices are set in international markets in hard currencies. Our portfolios have about a 50% exposure to rand hedge shares. The poor showing by the rand and the negative headwinds the country faces has seen the demand for hard offshore currency increase, but local investors can invest in rand hedge shares and portfolios to protect their wealth against a depreciating currency.
Hedge fund regulation played out pretty much as expected.
Mancos had to have their applications with the regulator by the end of September, accompanied by the individual fund applications. We are quite confident that early in 2016, some hedge funds will receive approval from the regulator. When this happens, Laurium will be converting its funds from limited liability partnerships to trust structures for both our retail hedge funds (RFs) and qualified investor hedge funds (QIFs). TheRFs will then be made available to retail investors. We are also looking forward to the LISPs adding hedge funds to their platforms when their systems are ready.
It was a good year to be a boutique fund manager.
In a volatile market, it is important that you can react quickly to news flow and position your portfolio accordingly, whether this be buying or selling a stock. But a boutique will only be as good as its processes and the skills and experience of the team. Many boutique fund managers now have long term track records, and as the performance of some of the bigger managers has dipped, there has been a lot more interest from large corporate investors in boutique managers.
The biggest challenge going forward: moderating return expectations.
The JSE, and consequently many funds, have delivered excellent returns over the last five years and longer. Going forward we expect more modest returns and given the recent past it is going to be difficult for clients to moderate their expectations.
The big risk for the next two years: a sovereign downgrade for South Africa.
We really don’t want this, but believe it will be a threat for the next two years.
Four wishes for 2016…
1. That markets go up – creating wealth for investors
2. That economic growth improves and more jobs are created
3. That our use of tax becomes as efficient as our collection of tax
4. Rain, lots of rain!