Wednesday, 01 October 2014 - 20:00
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Seed weekly - Capital Protection
One of the many pearls of wisdom dispensed by Warren Buffett is “Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No. 1”. Unfortunately this is easier said than done in the real world. Fund managers are acutely aware of investor aversion to losses.
Losses on portfolios can be due to market movements in the price of the investments or when investments go under or default on their obligations. The latter is permanent capital loss, as there is no opportunity to recover the losses suffered. African Bank is an example of this. Investors may get some of their capital back, but will unlikely get a material portion of it back.
When suffering losses, an investor requires a return higher than the loss to return to breakeven. The graph below shows the subsequent required return needed to breakeven for a particular levels of loss.
From the above graph we can see that the breakeven return required grows exponentially as losses increase. When investors suffer a 10% loss, they only need 11% to get back where they were. At a 50% loss the investments needs to have subsequent return of 100% to breakeven.
Fund managers have different ways in trying to minimise possible capital losses. If the fund manager is managing a multi asset class fund he/she will be able to underweight or avoid asset classes that are expensive (high in risk) and rather allocate capital to asset classes that are cheap (low in risk). An active fund manager can also try to reduce possible losses by individually picking the instruments he/she wants to include in their portfolio. They can select the companies that are undervalued and avoid ones that are expensive.
No fund manager is exactly alike and each has a different way in classifying risk and varying levels of risk aversion. The more aggressive fund managers will tend to outperform a conservative manager at the end of strong bull market. In bull markets a conservative manager will typically start taking profits from the stocks that performed well and deploy the capital into asset classes where there are opportunities. The aggressive manager will tend to ride the run as far as possible and will experience a bigger drawdown when the markets correct. Managers that avoid deep drawdowns typically perform better over full market cycles.
The graph below is a drawdown comparison between two funds (blue and green) and the category’s average fund (yellow). The blue line is a typical conservative manager and the green line a more aggressive manager. Both of these funds fall into the (ASISA) South African MA High Equity category.
During the financial crisis of 2008 the blue fund manager was able to protect capital much better than the green fund. The maximum drawdown of the blue fund was 11.8% compared to the green’s 23.4% and the average manager’s 16.8%.
This is one of the reasons one should take time to understand a fund manager’s philosophy and investment process. You might just be able to spare yourself some heartache by avoiding making an investment with an aggressive fund manager at the peak of a market cycle.
At Seed we understand that risk needs to be taken to generate inflation beating returns, but seek to structure our solution Funds (Seed Flexible and Seed Absolute Return) in order to ensure that they don’t experience permanent capital destruction.
Kind regards,
Gerbrandt Kruger
www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966
Wed, 01 Oct 2014
Top News
South African stocks fell for the third straight session on Wednesday, dragged down by mining companies such as Lonmin and AngloGold Ashanti which slid on plunging spot metal prices. Full story
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France laid down the gauntlet to EU partners on Wednesday with a 2015 budget setting out how it would bring its borrowing back to within EU limits two years later than promised, a retreat it blamed on a fragile economy. Full storyHong Kong authorities will not immediately move to clear tens of thousands of pro-democracy protesters occupying large areas of the city, and will let them stay for weeks if need be, a source with ties to leader Leung Chun-ying said on Wednesday. Full storyThe man being treated for Ebola in Texas showed no signs of fever or symptoms of the virus when he left Liberia for the United States via Brussels on Sept. 19, the Liberian government said on Wednesday. Full story |
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Markets | Stock markets worldwide launched
the fourth quarter on a negative note on Wednesday, as tepid
manufacturing data weighed on European markets and the. . . Full story | | Gold rebounded from the previous
session's nine-month lows on Wednesday as the dollar index
pulled back from early highs in the wake of. . . Full story | | Australian shares added 0.8
percent on Wednesday, supoorted by a rebound in recently
battered banking stocks, though sentiment remained fragile on
softer-than-expected retail sales. . . Full story | | Japan's Nikkei share average
dropped to a two-week low on Wednesday in choppy trade as civil
unrest in Hong Kong curbed risk appetite,. . . Full story |
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| | | The dollar advanced on Tuesday
after weak euro zone inflation data for September heightened
expectations of stimulus from the European Central Bank, while
world. . . Full story | | Gold fell to a
nine-month low on Tuesday as the dollar surged and commodities
led by crude oil tumbled on expectations of further. . . Full story | | Hong Kong's benchmark index
fell to a three-month low on Tuesday, finishing on its biggest
monthly fall since May 2012 as investors dumped. . . Full story |
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SA Business | Less than a year after tearing up a $57 million annual supply contract with its main buyer, Anglo American Platinum is struggling to implement a new strategy of selling directly to end-users against a backdrop of weak prices, sources say.. . . Full story | | South Africa's rand remained on the back foot against the U.S. dollar on Wednesday, still spooked by data showing yawning trade and budget deficits.. . . Full story |
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| South Africa's new vehicle sales rose 11.5 percent year-on-year in September to 60,854 units, data from the trade and industry department showed on Wednesday.. . . Full story | | South Africa's top public health worker union said on Wednesday it wanted a 15 percent across-the-board wage increase and would begin a series of protest marches over poor government services this week.. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:05 | 48875.03 | -461.28 | -0.93% | JSE Top 40 | 17:00 | 43679.72 | -480.59 | -1.09% | JSE Gold | 17:00 | 1245.79 | -19.73 | -1.56% | JSE Financial | 17:00 | 37034.73 | -213.60 | -0.57% | JSE Industrial | 17:05 | 65599.66 | -508.36 | -0.77% | JSE Indust 25 | 17:00 | 57838.57 | -533.04 | -0.91% | JSE Resource | 17:00 | 51716.55 | -840.24 | -1.60% | DJ Futures | 19:46 | 16726.00 | -206.00 | -1.22% | DJ Ind | 19:52 | 16794.91 | -247.99 | -1.46% | SP 500 | 19:52 | 1947.08 | -25.21 | -1.28% | Nasdaq | 19:52 | 4420.92 | -72.47 | -1.61% | FTSE 100 | 17:35 | 6557.52 | -65.20 | -0.98% | DAX | 18:08 | 9382.03 | -92.27 | -0.97% | CAC40 | 18:08 | 4365.27 | -50.97 | -1.15% | Nikkei | 08:42 | 16082.25 | -91.27 | -0.56% | Shanghai | 30/09 | 2363.87 | 6.16 | 0.26% | Hang-Seng | 30/09 | 23229.21 | 10.57 | 0.05% | All Ords | 08:46 | 5334.50 | 37.70 | 0.71% | NZSE 50 | 06:48 | 5274.58 | 19.54 | 0.37% |
| | Name | Time | RP | Move | % Move | Gold $ | 20:00 | 1214.48 | 6.26 | 0.52% | Gold R | 19:59 | 13665.05 | 29.08 | 0.21% | Gold R/kg | 19:52 | 439265 | -2175 | -0.49% | Silver $ | 20:00 | 17.2140 | .2310 | 1.36% | Platinum $ | 20:00 | 1283.31 | -8.19 | -0.63% | Palladium $ | 19:59 | 779.00 | 7.50 | 0.97% | R157 | 22/09 | 6.99 | -.02 | 0.00% | R186 | 17:41 | 8.35 | .03 | 0.36% | R204 | 17:10 | 7.57 | .06 | 0.73% | R207 | 17:10 | 7.78 | .07 | 0.91% | Brent Crude | 19:48 | 95.25 | -1.95 | -2.01% | Rand / Dollar | 20:00 | 11.2549 | -0.0311 | -0.28% | Rand / Pound | 19:55 | 18.1774 | -0.0901 | -0.49% | Rand / Euro | 19:55 | 14.1898 | -0.0657 | -0.46% | Rand / NZD | 19:59 | 8.7775 | -0.0438 | -0.50% | Rand / AUD | 19:55 | 9.8155 | -0.0596 | -0.60% | Yen / Dollar | 20:00 | 109.3020 | -0.3170 | -0.29% | Euro / Dollar | 19:55 | 0.7927 | 0.0013 | 0.16% | Dollar / Euro | 19:59 | 1.2608 | -0.0022 | -0.17% | Pound / Dollar | 19:55 | 0.6177 | 0.0013 | 0.21% |
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Click here for the Sharenet Spot Price page
The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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01/10/2014 | 116 | 226 | 58 | 400 | 222,857,587 | R13,793,822,148 | 175008 | 1494819 | 30/09/2014 | 180 | 182 | 70 | 432 | 257,675,056 | R18,445,160,646 | 224951 | 34348 | 29/09/2014 | 148 | 206 | 60 | 414 | 178,649,791 | R11,057,475,745 | 190134 | 1420069 | 26/09/2014 | 217 | 152 | 59 | 428 | 213,176,423 | R15,013,318,190 | 219099 | 1519062 | 25/09/2014 | 153 | 206 | 62 | 421 | 233,673,838 | R17,679,990,005 | 263405 | 889208 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 43,679.72 | -480.59 | -1.09% | Industrial | 65,599.66 | -508.36 | -0.77% | Mid Cap | 64,378.95 | -105.18 | -0.16% | Small Cap | 54,691.76 | -6.07 | -0.01% | Resource 20 | 51,716.55 | -840.24 | -1.60% | Industrial 25 | 57,838.57 | -533.04 | -0.91% | Financial 15 | 14,178.33 | -86.94 | -0.61% | Financial & Ind. 30 | 61,539.33 | -522.70 | -0.84% | All Share | 48,875.03 | -461.28 | -0.93% | Oil & Gas | 46,107.00 | -307.99 | -0.66% | Mining | 29,683.59 | -565.01 | -1.87% | Gold Mining | 1,245.79 | -19.73 | -1.56% | Platinum Mining | 36.72 | -1.03 | -2.73% | GENERAL MINING | 8,804.25 | -165.61 | -1.85% | Oil & Gas Producers | 24,790.88 | -165.60 | -0.66% | Basic Materials | 26,570.18 | -450.86 | -1.67% | Chemicals | 24,408.56 | 191.53 | 0.79% | Forestry & Paper | 32,342.02 | -182.38 | -0.56% | Industrial Metals | 16,151.64 | 107.07 | 0.67% | Industrials | 45,134.43 | 214.27 | 0.48% | General Industrials | 148.12 | 1.85 | 1.26% | Consumer Goods | 59,647.35 | -752.90 | -1.25% | Automobiles & Parts | 7,336.85 | -113.22 | -1.52% | Household Goods | 371.96 | 1 | 0.22% | Health Care | 90,820.20 | -890.90 | -0.97% | Beverages | 209.92 | -4.03 | -1.88% |
| | Index Name | RP | Move | % Move | Food Producers | 81,805.10 | -30.77 | -0.04% | Personal Goods | 907.68 | -13.18 | -1.43% | Consumer Services | 11,779.52 | -102.07 | -0.86% | General Retailers | 63,831.58 | -733.77 | -1.14% | Travel & Leisure | 5,865.76 | 31.28 | 0.54% | Media | 269.54 | -2.15 | -0.79% | Support Services | 2,716.31 | -76.15 | -2.73% | Telecommunications | 11,351.40 | -29.25 | -0.26% | Financials | 37,034.73 | -213.60 | -0.57% | Banks | 63,421.54 | -210.02 | -0.33% | Non-life Insurance | 53,908.01 | 173.55 | 0.32% | Life Insurance | 35,041.42 | -232.24 | -0.66% | General Financial | 3,586.00 | -52.58 | -1.45% | Technology | 44,598.72 | -189.15 | -0.42% | SHARIAH TOP40 | 4,002.12 | -52 | -1.28% | FTSE/JSE SHARIAH ALL | 4,167.87 | -46 | -1.10% | COAL MINING | 16,170.07 | -52 | -0.32% | FTSE JSE Fledgling | 6,718.82 | -36 | -0.53% | FTSE/JSE Alt X | 1,307.14 | 0 | 0.00% | SA LISTED PROPERTY | 538.76 | | -0.31% | CAPPED PROPERTY | 470.97 | | -0.49% | RESOURCE | 28,125.32 | -461 | -1.61% | DIVIDEND PLUS | 216.29 | -1 | -0.51% | FTSE/JSE RAFI 40 | 9,557.58 | -88 | -0.92% | Capped Top 40 | 23,187.35 | -248 | -1.06% | Capped All Share | 24,767.71 | -233 | -0.93% | JSE TABACO | 8,101.41 | -43 | -0.52% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | HSP | HOLDSPORT LIMITED | BUY | 29/09/2014 | NED | NEDBANK GROUP LTD | HOLD | 29/09/2014 | BVT | THE BIDVEST GROUP LIMITED | BUY | 29/09/2014 | ANG | ANGLOGOLD ASHANTI LIMITED | HOLD | 29/09/2014 | BGA | BARCLAYS AFRICA GRP LTD | HOLD | 29/09/2014 |
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Results Expected** Expected | Company Name | Fin. Date | 03/10/2014 | ISA | August 2014 (Interim) | 03/10/2014 | PHUMELELA | July 2014 (Final) | 03/10/2014 | SOVFOOD | August 2014 (Interim) | 06/10/2014 | CASHBIL | June 2015 (Final) | 06/10/2014 | FIRESTONE | June 2014 (Final) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | LONFIN | 30/09/14 | 14/11/14 | 12/12/14 | GBP 0.0045 | TELEMASTR | 30/09/14 | 17/10/14 | 27/10/14 | ZAR 0.0200 | AFRO-C | 30/09/14 | 21/11/14 | 01/12/14 | ZAR 0.1800 | INVPREFR | 30/09/14 | 17/10/14 | 27/10/14 | ZAR 12.9895 | ASTRAPAKP | 30/09/14 | 17/10/14 | 27/10/14 | ZAR 3.8959 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | ARM | 04/09/14 | 26/09/14 | 06/10/14 | ZAR 6.0000 | SASFIN-P | 10/09/14 | 26/09/14 | 06/10/14 | ZAR 3.6492 | MMI HLDGS | 10/09/14 | 26/09/14 | 06/10/14 | ZAR 0.8500 | SPURCORP | 11/09/14 | 26/09/14 | 06/10/14 | ZAR 0.6400 | MMI HLDGS | 10/09/14 | 26/09/14 | 06/10/14 | ZAR 0.5000 |
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Upcoming AGMs** Code | Company Name | Date | Status | WEA | WG Wearne Ltd. | 01/10/2014 | Confirmed | DLT | Delta Property Fund Ltd. | 02/10/2014 | Confirmed | TWR | Tower Property Fund Ltd. | 02/10/2014 | Confirmed | RBX | Raubex Group Ltd. | 03/10/2014 | Confirmed | KEH | Keaton Energy Holdings Ltd. | 06/10/2014 | Confirmed |
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