Much has changed over this quarter. We have a government of national unity, and there is an air of cautious optimism prevailing. We are not the only country that has voted for change or is experiencing political change. As the global political landscape shifts, it has knock-on impacts on the economic and investment environments.
Big changes in the retirement savings space
Back home, change is also afoot in the retirement savings arena. The new so-called two-pot system has recently been signed into law and will be implemented on 1 September. Many of you are likely to have retirement investments either with Allan Gray, other providers or through your employers. There is a lot of information to take in, but the most important takeaway is that for most members, no action is required.
In summary, the new system aims to improve retirement outcomes by focusing on preservation, while offering a measure of flexibility by providing some access in case of severe financial stress.
What does this mean? From 1 September 2024, your contributions to your retirement funds will be split between different components: Two-thirds will go to your retirement component, which must be preserved until you retire, and one-third will go to a savings component, which will be available for withdrawal once annually. Your existing assets will go to a “vested” component, and existing fund rules will continue to apply. Your savings component will be “seeded” to give you an opening balance, using 10% of your vested component, up to a maximum of R30 000.
... change is ... afoot in the retirement savings arena ... but the most important takeaway is that for most members, no action is required.
Please visit the “Two-pot retirement system” page to familiarise yourself with the detail of the new system. You can also read Lydia Fourie’s FAQ article, which covers some of the questions we have been fielding from clients to date and may help to answer some of yours. As Shaun Duddy explains in his piece, the new system should not change how you think about or invest your retirement savings, or have any bearing on your long-term retirement savings goals. It is advisable to view the components of your retirement account holistically and remain invested for the long term to improve the likelihood of having sufficient post-retirement income.
While access to the savings component will provide welcome relief to those in desperate need, it is important to guard against using these funds unnecessarily: Depleting your savings component ultimately equates to using up one-third of your retirement investment. Not electing to withdraw, but rather choosing to stay the course for the long term will result in better retirement outcomes.
We are gearing up for the changes we need to make to our systems, documents and reporting and will be able to service anyone who needs to access a portion of their retirement savings as per the new laws. However, having the option to access a portion of your retirement funds does not mean you should. If anything, it drives home the importance of building up a separate emergency savings fund, intended to be drawn from in the case of emergencies. In the Investing Tutorial this quarter, Tebogo Marite explains how to go about setting up an emergency fund, and how this provides an important buffer against crises – and acts as insurance for your long-term investments.
Investment matters
Turning back to investment matters, despite the moves in a positive direction, South Africa still faces significant social and economic headwinds. We have deliberately constructed diversified portfolios for a wide range of outcomes and continue to use our proprietary research to identify undervalued companies that present long-term opportunities. One area of the market that has captured our attention is “SA Inc” – local domestic shares that earn a material portion of their profits in South Africa. Duncan Artus discusses why we are finding value here, while being conscious of tail risk.
On the subject of risk, but focusing offshore: We are pleased to introduce the Orbis SICAV Global Cautious Fund from our offshore partner, Orbis. We believe this low-equity, global, multi-asset fund is a useful option for more conservative investors. As Nshalati Hlungwane discusses, it can invest across markets and in a broad range of securities and is worth considering if you have a shorter investment time horizon and are concerned about volatility in global equity markets.
We ... continue to use our proprietary research to identify undervalued companies that present long-term opportunities
Cinemark, the third-largest theatre chain in the United States and a leading chain throughout Latin America, is an example of an asset held by both the Orbis SICAV Global Balanced Fund and the Orbis SICAV Global Cautious Fund. While many continue to doubt the viability of theatrical exhibition, believing it will crumble before the rising tide of streaming platforms, the data shows that theatres make movies more popular and profitable. Jeffrey Miyamoto, from Orbis, explains why Cinemark is well positioned to benefit from an anticipated box office recovery.
Investing sustainably
Since our inception in 1973, we have held the view that a company that does not operate in a sustainable manner cannot sustain its profitability. Sustainability is therefore a key metric when assessing the investment case of a company. Clients often ask what this means in practice. We capture our approach in our latest Stewardship Report, which contains a range of case studies to bring the theories to life. It is a detailed yet fascinating review, and I encourage you to read it for more insight into our environmental, social and governance efforts.
We do not just report on our efforts in the Stewardship Report, but from time to time also highlight an aspect in our Quarterly Commentary. This quarter, we shine the light on the governance and incentive structures of the companies held in our clients’ portfolios. Nicole Hamman reports on some of our learnings, using mining companies Sibanye-Stillwater and AngloGold Ashanti as examples.
I hope you enjoy this quarter’s selection of articles. You can, of course, keep up to date with our thinking by visiting the “Latest insights”.
Thank you for your ongoing trust and support.