nfb sensible finance magazine issue 25

Eastern Cape's Community...

PERSONAL FINANCE

A FREE publicationdistributed Private Wealth Man gementby NFB a

p r i v a t e w e a l t h m a n a g e m e n t

Issue 52November 2013

NFB

PERSONAL FINANCEMagazine

Eastern Cape's Community...

A STRANGE WORLDgreat expectations meets

reality check

PROTECTING YOURPORTABLE POSSESSIONSwhat is covered whenyou leave home?

MANDELA DAYNVest HoldingsFinancial

is making a difference!

p r i v a t e w e a l t h m a n a g e m e n t

contact one of NFB's :private wealth managers

East London tel no: (043) 735-2000 or e-mail: @nfbel.co.zainfo

Port Elizabeth tel no: (041) 582-3990 or email: @nfbpe.co.zainfo

Johannesburg 11 895 8tel no: (0 ) - 000 or email: [email protected]

Web: www.nfb .co.zaec

NFB is an authorised Financial Services Provider

fortune favours the well-advised

Providing quality retirement,

investment and risk planning

advice since 1985.

The best way of preparing for the future is to takegood care of the present, because we know that ifthe present is made up of the past, then the futurewill be made up of the present.

Only the present is within our reach. To care forthe present is to care for the future.

- Buddha

editorBrendan Connellan

[email protected]

ContributorsBrendan Connellan (NFB East

London), Shaun Murphy (Klinkradt

Murphy), Julie McDonald (NFB East

London), Leigh Khler (Glacier by

Sanlam), Zuki Mbekeni (NFB East

London), Michelle Wolmarans

(NFBST East London), Lunga Nkonki

(NFB East London), Andrew

Duvenage (NFB Gauteng), Liberty

Life, Grant Berndt (Abdo & Abdo),

Bryce Wild (NFB East London),

Robyne Moore (NVest Holdings

East London), Debi Godwin (IE&T),

Travis McClure (NFB East London),

Robert McIntyre (NVest Securities)

AdvertisingRobyne Moore

[email protected]

layout and designJacky Horn DesignTA Willow

[email protected]

AddressNFB Private Wealth Management

East London Office

NFB House, 42 Beach Road

Nahoon, East London, 5241

Tel: (043) 735-2000

Fax: (043) 735-2001

E-mail: @nfbel.co.zainfo

Web: www.nfb .co.zaec

The views expressed in articles by

external columnists are the views

of the relevant authors and do not

necessarily reflect the views of the

editor or the NFB Private Wealth

Management.

201 All Rights Reserved.3

No part of this publication may be

reproduced in any form or

medium without prior written

consent from the Editor.

sensible finance EDSLETTEREDSLETTEREDSLETTER

1

Email your full name to @nfbel.co.za to subscribe toinfo

NFB's free economic electronic newsletters.

another aspect of our comprehensive service

sensible finance november13

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a sensible reada sensible read

Igot to feel how poor Achilles felt when he was taken down in the

Trojan War after recently snapping my Achilles' tendon while

playing a game of squash (not to mention also feeling my age).

Ten weeks; one operation; physiotherapy and much frustration later,

I am well on the road to recovery. The unforeseen accident has,

however, had a much greater impact on me than I could have

envisioned on the night that it happened, with several lessons also

learned.

The tendon repair operation was followed by six weeks on

crutches with my foot in a cast-boot. Until then, I'd never given a

second thought to how much one's life is affected when making use

of those little props that soon started to feel as though they were

extensions of my arm . One forgets, or does not realise, that havings

one inoperative leg means that driving a manual transmission isn't

possible and can lead to complete reliance on others just to be

able to leave the house; go to work or go shopping. Shopping is

completely impractical as there are no free arms to push a trolley or

carry a basket. I tried carrying a basket by hanging it on a crutch

and shortly after landing on my butt on the floor next to my milk and

orange juice, vowed not to try that again.

Showering while on one leg was another failed experiment.

What had been a mere three or four metre hop on dry tiles just

minutes earlier, soon became a three or four minute one-footed

shuffle on a wet slippery floor; convinced that at any moment I'd be

lying parallel to the floor with a somewhat damaged head.

The experience, as trying as it has been, has fortunately been a

temporary one. It has made me appreciate my good health and

given me empathy for the elderly and disabled. I'd never before

been able to even imagine the fear that someone can feel

climbing stairs or walking on a slippery floor and people on crutches

seemed mobile, so I had never gone out of my way to offer much

assistance.

Thankfully the injury wasn't more serious and I won't be making

use of my disability insurance just yet (though it has shown me why I

have it in the first place!). Isn't it astonishing that it usually takes an

accident, illness or death for us to learn important lessons such as

these?

Brendan Connellan - Editor and Director of NFB

nfb sensible finance November 2013November 2013November 2013

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SENSIBLE CONTENTSSENSIBLE CONTENTSSENSIBLE CONTENTS

NFB CLIENT SATISFACTION SURVEY FEEDBACK4See what our clients think of us! By Brendan Connellan,

NVFH & NFB Director - NFB East London

6 NEW B-BBEE CODES OF GOOD PRACTICESome of the salient features discussed. By Shaun Murphy, Partner - Klinkradt Murphy

7 SURETYSHIP PROTECTIONAre you missing something? By Julie McDonald, Financial Paraplanner - NFB East

London

8 10 STEPS TO A CAREFREE RETIREMENTMaking it a successful one. By Leigh Khler, Head of Research at Glacier by Sanlam

9 MARRIAGE CONTRACT OPTIONSAn important pre-wedding decision. By Zukiswa Mbekeni, Financial Paraplanner -

NFB East London

10 PROTECTING YOUR PORTABLE POSSESSIONSWhat is covered when you leave home? By Michelle Wolmarans, Manager - NFB

Insurance Brokers

11 BUDGETINGThe foundation of every financial plan. By Lunga Nkonki, Trainee Financial

Paraplanner - NFB East London

14 A STRANGE WORLDGreat Expectations meets Reality Check. By Andrew Duvenage, Director/Private

Wealth Manger, NFB Gauteng

16 LIGHTING THE FLAMEA proud track record of innovation and diversification. Contributed by Liberty

18 LIABILITY FOR MUNICIPAL CHARGESPurchaser.beware! By Grandt Berndt, Abdo & Abdo

21 LISTED PROPERTY AT A GLANCEThe upward trend is clear. By Bryce Wild, Financial Advisor - NFB East London

24 OUR CONTRIBUTION TO MANDELA DAYYou too have the ability to impact the life of others. By Robyne Moore, Compliance

& Operations Administrator - NVest Financial Holdings East London

25 ADMINISTRATION OF AN ESTATEPossible obstacles which may be encountered. By Debi Godwin, Director -

Independent Executor & Trust

27 Q &A.You ask. We answer. Advice column answering your investment, personal finance,

life and/or risk insurance questions with Travis McClure, Private Wealth Manager - NFB

East London

28 GET YOUR DIVIDEND FROM VIVIDENDBy Rob McIntyre, r - NVest Securitiesdirecto /stockbroker

4NFB Client SatisfactionfeedbackSurvey

See what our clients think of us! By ,Brendan ConnellanNVFH & NFB Director - NFB East London

SENSIBLE FEEDBACK


The more you engage with customers the clearer

things become and the easier it is to determine

what you should be doing. - John Russell,

President, Harley Davidson

NFB conducts an annual electronic client

satisfaction survey in order to gauge whether or not

the company and its staff are meeting the service

expectations of our clients. The information

gathered from this is an important tool which helps

us to develop action plans tailored to meet and

exceed client expectations.

The results from our 2013 survey, which was

conducted in July and emailed to approximately

2,900 clients, received many responses, far

exceeding our expectations. This robust response

rate ensures a high level of statistical validity and a

high probability that the results reflect the views of

the broader NFB client base.

Bill Gates once said that your most unhappy

customers are your greatest source of learning

and so it is with this in mind that we approached

this exercise.

Below we present a summary of our key

findings to you.

Clients gave NFB an overall satisfaction rating

of 97%, with 84% being very satisfied. We were

extremely pleased with this overall result, especially

given the high number of responses as well as the

fact that surveys are often responded to by

dissatisfied respondents as an outlet for their

frustrations.

NFB financial advisors received a satisfaction

rating of 97%, with 87% of clients being very

satisfied. We believe that this excellent result is

directly related to the recent process of up-skilling

our financial advisors, an extensive program which

we embarked on several years ago. All of our

financial advisors have now obtained industry-

related qualifications with the majority of NFB

advisors having postgraduate degree level

qualifications. Several have more than one

postgraduate qualification and are now Certified

Financial Planner professionals.

NFB's administrative abilities and personnel also

scored exceptionally well, with a satisfaction rating

of 99.4%, with 90% of clients being very satisfied.

Once again, we believe this to be indicative of the

training process embarked upon by our

administrative team. A large number of our

administrative staff have studied or are in the

process of studying at tertiary level.

We were also encouraged to see that 92% of

clients felt that they would be likely to recommend

our products and/or services to others and that

94.5% of our clients were satisfied with the amount

of personal contact that they receive from NFB.

What was interesting for us to note is that many

clients are not aware of the full range of services

that NFB offers. For example, although 95% of our

clients knew that we offer investment planning and

87% that we offer retirement planning, only 65%

were aware that we offer risk assurance, this being

life insurance; disability and business assurance.

Only 47% of the respondents were aware that

we offer short term insurance services; 53% were

aware that we offer medical aid advisory services;

67% were aware that our services include the

drafting of wills; the administration of deceased

estates and a stock broking service and 62% were

aware that we have a division that specialises in

Group schemes for businesses.

We have thus identified a need to ensure that

we take greater effort to inform clients about our

comprehensive range of products and services.

NFB management are very pleased with the

overall outcome of the survey. Despite the very

positive feedback, we believe that there is always

room to improve. We are confident that the action

plans put in place as a result of this survey, will help

us to take our service levels to an even higher level

and that future surveys yield even better responses.

We thank all those who took the time to

complete the survey and hope that the results

prove our commitment to achieving the highest

levels of client service and satisfaction. If you are

already an NFB client, we thank you for your

patronage. If you are not already an NFB client, we

hope that you will put our services to the test.

Some of the salient features

discussed. By , CAShaun Murphy

(SA), Partner Klinkradt Murphy

6

NEW BROADBASED BLACKECONOMIC EMPOWERMENT

CODES GAZETTED

B-BBEE

Status

Current

QualificationNew Qualifcation

B-BBEE

Recognition

Level

Contributor

New versus old recognition levels

Non-Compliant

SuretyshipProtection

7

SuretyshipProtectionAre you missing something?

By Julie McDonald,

Financial Paraplanner - NFB

East London

continued on page 20...


SENSIBLE PROTECTIONSENSIBLE PROTECTIONSENSIBLE PROTECTION

Financial assistance from a bank or other

institution is often required during the initial

start up of a business or during a period of

growth or expansion. It is common practice for

lenders to call for personal surety from the

individual persons concerned, irrespective of the

legal framework of the business. Once the

suretyship agreements have been signed, the

funds become available and it's back to business

as usual.

The following questions need to be asked:

Do the persons who stood as surety fully

understand and appreciate the duties and

responsibilities associated with this?

Are they aware of the inherent risks in the event

of their death or disability?

What is Suretyship ProtectionInsurance?Suretyship Protection is a life insurance policy taken

out by the business entity (principal debtor) on the

life of the individual (surety) who has stood personal

surety for the loan taken by the business entity from

a financial institution.

Policy StructureOwner: Business Entity

Life Assured: A

Premium Payer: Business Entity

The primary purpose of such insurance is to protect

the estate of the person who has stood personal

surety (the basis of the insurance as well as the

insurable interest). In addition, by protecting the

estate, one is also protecting the family and loved

ones of the surety.

Section 3 of the Estate Duty Act contains

certain provisions where the values of policies are

estate duty exempt (for example, if the policy was

not effected by or at the instance of the

deceased, if no premium was paid by the

deceased and if proceeds are not payable into

the deceased's estate). However, for suretyship

protection policies, the policy IS effected by or at

the instance of the deceased, as the primary

purpose of the Suretyship Protection Policy is to

protect the estate of the deceased. Estate duty

therefore applies and upward adjustments to the

insured amount need to be made for this.

The policy should be grossed up by 25% to

compensate for the 20% prevailing estate duty

rate. Be careful not to gross up by only 20% as this

will result in a net shortfall and being insufficiently

insured for surety purposes. The reason for this is

best illustrated by way of an example:

Assume the death cover on a policy is R10

million.

Example 1: 25% gross up to compensate for estate

duty payable

Gross up amount: R10,000,000 x 25% = R2,500,000

Add to get adjusted death cover amount:

R10,000,000 + R2,500,000 = R12,500,000

Estate duty payable: R12,500,000 x 20% =

R2,500,000

Net amount available after estate duty paid:

R12,500,000 - R2,500,000 = R10,000,000

Example 2: 20% gross up to compensate for estate

duty payable

Gross up amount: R10,000,000 x 20% = R2,000,000

Add to get adjusted death cover amount:

R10,000,000 + R2,000,000 = R12,000,000

Estate duty payable: R12,000,000 x 20% =

R2,400,000

Net amount available after estate duty paid:

R12,000,000 - R2,400,000 = R9,600,000

As can be seen in example 2, using a 20% gross up

results in a R400,000 shortfall!

8Making it a successful one. By Leigh

Khler, Head of Research at

Glacier by Sanlam

carefree retirement10 Steps to a


SENSIBLE RETIREMENTSENSIBLE RETIREMENTSENSIBLE RETIREMENT

Each year, as the end of the tax year looms,

many investors take advantage of the tax

benefits of making additional contributions

to their retirement annuities (RA). But so

much more goes into the planning of a successful

retirement than simply making an additional saving

once a year. In this article we look at some of the

things that successful investors do to ensure that

their retirement years are indeed their 'golden

years'.

1. They start investing earlyThe earlier you start saving, the earlier compound

interest can start working for you. For each year

that you delay saving, the higher your monthly

contribution will need to be in order to achieve the

same targeted amount.

2. They make additional savingsIt's unlikely that your company pension fund will

sustain you over a potential 30-year retirement

period. An RA lets you save over the long term as

funds invested cannot be accessed before the

age of 55. New generation RA's also allow you to

select your underlying investments, with full

transparency. You could even include a

personalised share portfolio within your RA

investment. An RA also lets you make additional

contributions at any time, with no penalties if you

stop or reduce monthly payments.

3. They increase their contributions inline with inflationYour monthly contribution to your RA will diminish in

real terms over time if you don't adjust your

contributions in line with inflation. This will result in

you contributing less than you think you are.

4. They have exposure to growth assetsIn order to keep pace with inflation investors need

a certain allocation to growth assets, such as

equities, in their portfolio even post-retirement.

5. They diversifyInvestors should diversify across asset classes as well

as across asset managers. This should reduce the

overall portfolio volatility. There is also a strong case

for diversifying internationally as expectations are

that global equities will outperform the local market

over the next few years.

6. They stick to their investment strategyGenerally, investors who've consulted with a

qualified financial adviser and drawn up a

diversified, risk-profiled plan, will benefit by sticking

to that plan over the long term and not reacting to

short-term 'noise' in the market.

7. They look after their healthHealth and medical care should be prioritised

when saving for retirement, as medical costs can

form a large percentage of a retiree's spending. It's

well documented that medical inflation is much

higher than general inflation.

8. They keep active and interested inlifeRetirement options aren't what they used to be.

These days retirees are opting to start new

businesses and even further their studies. These

activities give meaning and purpose to their

golden years while allowing them to continue to

play a role in the economy. The message is clear

don't stop planning, working or dreaming.

9. They consult with a qualified financialadviserA qualified financial adviser is invaluable in helping

you draw up a realistic plan, while keeping

emotions out of the decision-making process. An

adviser will be able to look holistically at your

investment plan, retirement plan, tax situation, and

advise you accordingly.

10. They take responsibilityNo-one said it was going to be easy. But investors

can do a lot for themselves by taking an active

interest in their investments, by reading and staying

up to date on the markets. So be informed, ask

questions and take control of your future, starting

today.

MARRIAGECONTRACTOPTIONSAn important pre-wedding decision.

By FinancialZukiswa Mbekeni,

Paraplanner - NFB East London

MARRIAGECONTRACTOPTIONS

9sensible finance november13

SENSIBLE OPTIONSSENSIBLE OPTIONSSENSIBLE OPTIONS

One of the many important decisions facing

couples preparing for marriage is the

marriage property regime they choose.

In community of property is the default

marital regime. Should the couple decide against

this default option, a legal document termed an

ante nuptial contract must be signed before the

wedding. The ante nuptial contract spells out the

treatment of the couple's financial affairs during

the marriage and also determines how the spouse's

estates will be handled on dissolution of the

marriage. Dissolution refers not only to divorce, but

also to the inevitable death of either spouse.

In addition to safeguarding assets in the

abovementioned events, it is important to choose

the option that suits the couple's long term estate

planning needs in the best way. There are three

marriage contract options:

In Community of Property. Under thisregime, all debt and assets, from the date of the

marriage, are divided equally between the two

individuals, thereby creating a joint estate. This

applies to assets and also debt acquired before

and during the marriage. From the date of the

marriage, the spouses are jointly and mutually

responsible to each others debt. Shouldhonour

one spouse become insolvent, both spouses could

lose their assets, as they become one entity.

Due to the consequences of exposing even

the unknowing spouse to debt and possible

disrepute, the law requires written consent from

both spouses when entering into any major

transactions. These include the buying or selling of

property; entering into credit agreements, and the

signing of suretyship amongst others.

Out of Community of Propertyexcluding Accrual. This option keeps all theassets and debt of the spouses separate during

and after the marriage. It may be a suitable option

for those who have had children prior to their

marriage, or those that have built up substantial

estates prior to getting married. This option creates

no obligation to share assets. In the case of death

or divorce, each spouse only has a claim on the

assets legally acquired in their name. Should the

marriage come to an end, a spouse will have no

claim on the property of their spouse. The spouses

are able to leave assets to each other only through

a will.

Out of Community of Property withAccrual. This could be viewed as the middleground. This regime allows the partners in the

marriage to run their independent financial affairs,

but requires them to share in the growth of their

estates by dividing the estate with the bigger

growth equally between the spouses. The ante

nuptial contract can be adapted further to include

and exclude whatever items the couple wishes in

the accrual calculation, and may also include

conditions to be met prior to certain assets being

shared. This regime attempts to protect the spouse

who may have been unable to work due to

childbearing and looking after the home, but also

allows the spouse who was the provider in the

home, to retain the bulk of their estate.

Changing the marital regime after marriage is

possible this does however involve an application

to the High Court and a considerable amount of

money. Consultation with a legal advisor prior to

entering into a marriage will enable the couple to

make a well informed decision the first time

around.

If you are considering marriage, we also urge

you to contact an NFB Private Wealth Manager on

043 735 2000 or [email protected] to discuss options

available to you in planning your financial future

together.

SENSIBLE COVERSENSIBLE COVERSENSIBLE COVER

What is covered when you leave home? By ,Michelle Wolmarans

Manager - NFB Insurance Brokers

PROTECTING YOUR POSSESSIONSPORTABLE

i n s u r a n c e b r o k e r s ( b o r d e r ) ( p t y ) l t d .sensible finance november1310

What happens when you walk out your

front door to go to work, school, gym,

a social gathering or on holiday with

various personal possessions? Once

you leave your property the portable possessions

that you take with you are no longer protected by

your household contents insurance policy.

We often underestimate the value of the

possessions that we carry around with us. A typical

Mom's handbag could contain the following items:

branded sunglasses, bottle of perfume, make up

bag, cell phone and wallet. Mom would also

probably be wearing her wedding and

engagement rings, watch and earrings. The value

of these items could easily exceed R10 000. What

happens if Mom's bag is grabbed out of her hand,

or she accidentally sits on her sunglasses or she

takes off her rings to wash her hands and apply

hand cream, and accidentally leaves them in a

coffee shop bathroom?

Regardless of our age and occupation the

reality is that in order to survive and thrive in this

technology driven world we all carry expensive

electronic gadgets on or with us. We organize our

lives and communicate with friends and business

partners via cell phones, Garmins, ipads, tablets,

gaming devices and laptops.

This begs the question: how do we provide

cover for these portable items?

The answer is two-fold: firstly, cover known as

General All Risks must be included on our policies.

General All Risks provides cover in respect of

clothing and items designed to be worn or carried

on a person including sporting equipment

anywhere in the world.

Secondly, it is important to be aware of the

fact that certain high risk items such as cell phones,

ipads and latops are not covered by General All

Risks and therefore have to be insured separately.

Insurers also place a limit payable per item in

respect of General All Risks cover.

This is best illustrated by means of an example:

The Clarke family flies from East London to

Johannesburg and en route a suitcase is stolen. The

suitcase contains clothing valued at R5 000,

toiletries valued at R1 000, a camera valued at R8

000 and an ipad valued at R5 000. The Clarke

family has General All Risks cover

of R10 000.

The claim will be settled as

follows:

Clothing R5000

Toiletries R1000

Camera R2000 (limit per item 20% of

sum insured of R10 000)

Ipad nil (no cover as this item has to

be insured separately)

Total amount paid R8000

In order to have the claim paid in full, Mr

Clarke should have specified his

camera as a separate item due to the high value

of the item; he then would have been paid the full

replacement value. The ipad is specifically

excluded from the General All Risks cover and

should have been insured separately.

It is important to ensure that annual valuations

are obtained in respect of specified items to ensure

that the sum insured represents the current

replacement value.

There has been a significant increase in the

amount of All Risks claims submitted in respect of

items being stolen from motor vehicles as a result of

remote jamming. When you press your vehicle

remote to lock your vehicle the thief will press their

jamming device in close proximity to your vehicle

and this will scramble the message sent by your

remote with the result that your vehicle will not lock.

Once you are out of sight the thieves simply open

your car and help themselves. This creates a

problem when a claim is submitted as the majority

of insurers will not pay a claim for items stolen from

a motor vehicle unless there are signs of forcible

and violent entry into the vehicle.

In order to ensure that you are not the next

jamming victim it is imperative to ensure that your

motor vehicle is locked before you walk away.

Manually check or test the doors and the boot.

Should you require more information pertaining

to All Risks insurance or would like us to provide you

with a quotation, please do not hesitate to contact

our qualified marketers or underwriters.

BUDGETING

11

The foundation of every

financial plan. By Lunga

Nkonki, Trainee Financial

Paraplanner - NFB East

London

IT'S EASIER THAN YOU THINK!BUDGETING


SENSIBLE FOUNDATIONSENSIBLE FOUNDATIONSENSIBLE FOUNDATION

Budgeting lies at the foundation of

every financial plan. It doesn't

matter if you're living from paycheque to

paycheque or earning six-figures a year, you need

to know where your money is going if you want to

have a handle on your finances.

Contrary to popular belief, budgeting isn't all

about restricting what you spend money on and

cutting out all the fun in your life. It is rather about

understanding how much money you have and

then planning how to best allocate those funds.

While it might make things a lot easier, the

secret to being financially independent doesn't

only lie in earning a lot of money, but rather in

learning to manage the money you have more

effectively. Reducing your monthly expenditure;

learning not to live on credit and committing to

getting rid of debt requires little more than a simple

change of attitude.

There are a number of principles which can be

applied to help you on your way. Simple concepts,

which when applied, are almost certain to improve

your financial well-being.

The first, and most important, is to pay yourself

first. This means saving the first portion of your

income before you pay off anything. You need to

have an emergency savings fund or a particular

goal you're saving towards. Preferably set up a

debit order for this. Savings are important in

ensuring you have enough money put away in the

event of something coming up unexpectedly.

Secondly, . Have a vision thatremain focussed

is backed up by a concrete, achievable and

realistic plan. Think about getting support if you

know you lack discipline by having one person hold

you accountable. Keep your vision/goal clear and

don't compromise.

Never forget! Know how much money you

earn; who you owe and how much you have left.

The only way to know this is by writing down your

budget. List your creditors by name - this will make

it

more

tangible.

Charge down

debt. Treat debt like the enemy it is! Develop an

aggressive attitude towards debt and you'll soon

be rid of it. For example, if you have five

outstanding debts, tackle the largest first, this

usually accumulates the most interest. Create

strategies to get rid of debt and DON'T replace it

with another once you have paid it off.

Slow down and take a breath. If you're

contemplating a purchase that is not an absolutely

necessary item, give yourself a week to think about

whether you really need it before you hand over

your hard-earned money. Impulse buying is a trap

for the unwary.

Lastly remember the KISS - Keep It Simple,

Stupid! If you spend the first hour of your day

checking accounts; tracking spending and

adjusting spreadsheet columns, you'll soon lose

interest. Try to make your budget as simple as

possible. Perhaps limit yourself to as little as three

categories, such as household; debt and savings. A

cluttered page translates to a cluttered mind, and

a cluttered mind knows no action!

Financial freedom takes willingness,

commitment and loads of discipline. By developing

a budget, you'll start to think more and more about

your relationship with money. As with most

relationships, it needs tending and attention in

order to grow and to remain strong. By having a

proper plan in place and sticking to it, you'll be well

on your way to sunnier days.

Contact an NFB Private Wealth Manager to

assist you with your investing or savings plan on 043

735 2000 or [email protected]

14

Non-resident buying of South African bonds

Source: Citi Research, Datastream

A Strange World:

meets Reality Check

A Strange World:Great Expectations

The story so farThe last 5 years have seen

incredible performance figures

coming out of local markets.

After the financial crisis of 2008,

investors have benefited from significant recoveries in

asset values, despite the great uncertainty that the

world has been living with. At the height of the crisis,

and given the massive structural and financial system

problems that existed in America and in Europe, not

many investors would have predicted the extent to

which markets have recovered.

As gratifying as the recovery has been for investors,

it does come with concerns due to what can only be

described as a large disconnect between market

performance and economic reality. In a South African

context, we have seen a massive equity and property

market surge, yet we are sitting with anaemic

economic growth. With the JSE flirting with its all-time

high, the conclusion that can be made is that South

African businesses (on aggregate) are worth more than

they have ever been worth. Logic would dictate that

for this to be true and sustainable, these businesses

must be operating in very good conditions economic

conditions that support the businesses operations,

revenue streams and consequently their valuations.

But is this the case? South Africa's GDP growth (rate

of growth of the economy) has been sluggish (around 3

%). Labour relations in South Africa are not in a good

way resulting in significant disruptions in the economy

as well as unsustainably high wage increases which

negatively influence the profitability of businesses (in

fact in this regard, South Africa was rated as the worst

of 148 countries in the World Economic Forum's most

recent Global Competitiveness Survey). On a macro

level, high levels of unemployment (officially at around

25%, but in reality probably a fair bit higher) are of

concern. Similarly, the continued underperformance in

the education outcomes of the country (where we rank

an abysmal 146/148 countries in the same WEF survey)

represent massive headwinds to economic

performance. While there are certainly bright spots in

terms of the South African economy, the economic

reality which we currently face, is not an environment in

which we would normally expect equity valuations to

be at all-time highs.

Unintended ConsequencesA logical question would be to ask why we have seen

such strong performance in our markets in the context

of soft economic conditions. The answer is to a large

extent explained by the concept of unintended

consequences. After the 2008 economic crisis, central

banks across the world aggressively cut interest rates

(close to 0% in the US, and 0.5% in the Euro Zone) and

pumped money into the financial system. The aim was

ultimately to stimulate economic activity and to

promote recovery. While we are seeing signs of this

strategy succeeding (specifically in the US context),

there was a somewhat unintended consequence that

arose. Huge volumes of money found their way into

financial assets as opposed to into economic activity.

The so called carry trade is a great example of this.

Investors began to take very large sums of money out

of the low interest rate environments in the US, Europe

and the UK, and started deploying these assets into

markets with higher interest rates. Similarly, large

amounts of money found its way into equity markets.

Emerging markets were major beneficiaries of this set of

circumstances resulting in material increases in equity

prices, property prices, and bond markets and in the

currencies of these countries. South Africa too

benefited from large inflows of foreign money, which

helped buoy most market sectors, despite the lack of

good, strong economic fundamentals to support the

new levels being created.


By Andrew Duvenage,

Director/Private Wealth

Manager NFB Gauteng-

15

Listed Equity PE RatioJSE ALL Share Index (AJ253)

continued on page 20...


The risk of a disconnectThe disconnect between financial markets and

economic performance represents a challenge for

investors. If the logic is accepted that certain

abnormal factors (extremely low interest rates and

huge amounts of liquidity being pumped into global

markets) are influencing the performance of markets,

one has to consider what will happen when these

factors are removed. The risk here is that when global

interest rates start to increase, and when the so called

Quantitative Easing program starts to taper off, we

could potentially see significant reductions in asset

prices as the tide of global money realigns itself to

reflect a new reality.

At this point, the focus will in all likelihood shift back

towards economic fundamentals and whether the

performance of specific assets justify the prices that

they are currently trading at. The concern is that the

economic fundamentals may not be supportive of the

valuations. As an example, the JSE (on aggregate) is

starting to look somewhat expensive when comparing

its PE ratio to historical averages. Thus, very strong

earnings will need to come out (in a soft economic

period) in order to support these valuations.

Realigning ExpectationsDespite concerns regarding the disconnect that we

see and abnormal factors that could potentially

unwind, the suggestion is not to dump market related

assets and sit in cash. What is being highlighted is that

investors must be cognisant of risk and must understand

their ability to absorb volatility. Unfortunately, the strong

performance of markets has resulted in investors

disregarding risk, and looking to position themselves

more aggressively than is appropriate in order to get

in on the action. Investors (and advisors for that

matter) in times of strong market performance, should

aim to capture as much of the upside as possible, but

still be cognisant of the risk that exists in the assets that

are driving the returns in portfolios.

The key here is to ignore historic returns and realign

ones expectations for returns.

So what is realistic? A good starting point in

answering this question is to look at historical returns

over an extended period of time. Over the past 30

years the JSE has achieved approximately 17% per

annum. Whilst historical performance is just that

historical - it is still a good starting point. A period of 30

years gives a better indication of what should be

expected as it contains performance from both good

and bad times in the economic cycle. But this is the

new South Africa how can our past performance be

an indication of our future prospects? Whilst many

fundamentals have remained the same, there have

been significant changes to the structure of the SA

economy. Changes in fiscal and monetary policy have

resulted in a significantly lower inflationary environment,

and change in political dispensation has resulted in

significant opportunities for economic growth and

development. So technically, to use an historic figure as

the basis for our future estimates may not be

reasonable. Let's look at it from a different angle to get

back to our question regarding realistic expectations.

What are the basic components of determining a

realistic return? Firstly you need to get compensated for

inflation, next for economic growth [GDP], and then be

compensated for the risk associated with investing.

What does this mean in numbers?

o The reserve bank has an inflation target range of 3-

6%

o GDP growth is around 3%

o A fair equity risk premium for SA is approximately 5%

Thus, a simplistic estimate for an expected return in

equity investments is in the region of 10-14%. Whilst this

method is by no means an exact science, it gives us a

useful benchmark to assess our long-term performance.

The implicationHow does having a realistic benchmark help us? The

first outcome is that with lower expected returns, time

horizons are going to have to change. The returns of

the last 3 years have meant that many investors have

achieved their financial goals in record time. This

situation is probably not going to be repeated in the

near future and thus investors are going to have to shift

from a short-term mindset to a long-term outlook. In

practical terms this means that investors who have had

great success with strategies that can be loosely

defined as speculative will have to pay far more

attention to their long term strategy, and to do this they

will have to focus on asset allocation. Briefly, asset

allocation is the blend of the various asset classes

[cash, bonds, property and equity] in a portfolio. This

blend is determined by factors such as age, time-

horizon, appetite for risk, and investment objectives.

MUNICIPAL CHARGES

SENSIBLY CAUSIOUSSENSIBLY CAUSIOUSSENSIBLY CAUSIOUS

Purchaser.beware! By

Grandt Berndt,

Abdo & Abdo

LIABILITY FOR


The question of liability for Municipal charges

has recently been considered by the

Supreme Court of Appeal in the matter of the

City of Tshwane Metropolitan Municipality vs

Mathabathe and Another.

The case centered around Section 118 (1) and (3)

of The Local Government: Municipal Systems Act.

In terms of Section 118 (1), the Registrar of Deeds

may not register the transfer of property except on

the production of a rates clearance certificate

issued by the Municipality in which the property is

situated and which certifies that all amounts due in

connection with that property for all Municipal

services and charges during the 2 years preceding

the date of application have been fully paid.

Section 118 (3), states that an amount due for

Municipal services and charges is a charge upon

the property, in connection with which the amount

is owing, and enjoys preference over any

Mortgage Bond registered against the property.

In the case before the Court, Mr Mathabathe

had sold his property and when the attorneys

attending to the transfer applied for rates

clearance figures, they were informed that the

amount required was R162 722,26, of which R151

324,22 was more than 2 years old and termed

historical debt.

The Municipality refused to issue the rates

clearance certificate against payment of only the

preceding 2 years charges as prescribed by

Section 118 (1). Mr Mathabathe then launched a

Court Application to compel the Municipality to

issue the rates clearance certificate against

payment of the preceding 2 years charges. He

was understandably successful with his Application.

The Municipality, however, launched a

Counter Application that Mr Mathabathe or the

conveyancing attorneys undertake to pay the

balance of the debt, being the historical debt, on

registration of transfer before they would issue the

rates clearance certificate. The Municipality

maintained that should they not receive this

undertaking or guarantee, that they would lose

their right, which was a preference right to even a

Bond Holder, to recover the outstanding balance

due to the Municipality.

The Court dismissed their Counter Application

due to the fact that in terms of Section 118 (3), the

Municipal charges are a debt against the property,

without a time limit and gives the Municipality

preference even ahead of a Bond Holder.

Accordingly, the Municipality is allowed to

ultimately sell a property in execution, even though

the owner at the time legal action was instituted by

the Municipality, was not the owner at the time the

Municipal charges in question were incurred.

Thus, unless one makes sure that the Seller's full

liability to the Municipality has been settled, the

Purchaser could find himself liable for the previous

owner's Municipal debt. This concern is

exacerbated by the inefficiencies of some

Municipalities in their record keeping, the inability

of their sometimes untrained staff to issue accurate

rates figures and their lack of credit control

processes.

In terms of the self same Local Government:

Municipal Systems Act, the Municipalities are to

have debt collection/credit control policies in

place. Thus, whilst a new owner may well be able

to argue that it is due to the Municipality not

adhering to their credit control policy and that

he/she is therefore not liable for the previous

owner's debt, this will inevitably by an expensive

legal process to follow.

As a result, it is recommended that the

Purchaser obtain a warranty from the Seller that all

Municipal charges are paid up as at the date of

transfer.

Managing uccess into the futures

Our services include:

Accounting Auditing Taxation PlanningEstate Planning All Statutory Registration Business Structuring

Concessions Due Diligence Business Succession Planning

Contact us on 043 726 9555 for all your queries.

partners: Gary Klinkradt ca (sa) and Shaun murphy CA (SA)

20

Suretyship Protection ...continued from page 7

A Strange World ...continued from page 15


The implementationNow that realistic expectations have been re-

established, it is important that the investor revisit

their investment strategy. To do this, the following

framework can be used:

1. Set your financial goals

2. Calculate the required rate of return to achieve

these goals

3. Examine the asset allocation that would be

required to reach this rate of return

4. Assess risk attached to this asset allocation

5. Adopt the investment strategy or adjust your

financial goals if the risk attached to the asset

allocation isn't commensurate with your personal

risk profile

ConclusionWith the myriad range of products and funds

available in the market that need to be thoroughly

assessed and blended to give you the perfect mix

required to achieve your financial goals, it can be

a daunting task out there on your own. We would

recommend consulting and using a qualified NFB

financial advisor who can give you the

independent, broad-spectrum advice that will help

you come to an informed decision that will enable

you to have the quality of life for which you have

worked so hard. The perfect reaction to this

opinion, is not to rush out and cancel all your

investments and start again, it is the careful

assessment, preferably with an advisor who you

feel comfortable with, of every product, cash flow,

and portfolio as well as life policies you have. Quite

often, institutions can, and will, accommodate

simple changes to the product or portfolio and

these can make an incredibly positive change to

your investment outcome.

What are the benefits of aSuretyship Protection Policy?1. Protect the surety's estate, family and loved

ones;

2. Provides capital cash injection into the business

entity;

3. Outstanding loans owed to the bank are settled

in full;

4. The bank is protected (as it may take a security

cession of the policy);

5. The outstanding loan is settled by the business

entity and thus the value of the business entity is

immediately increased;

6. Attractive looking financial statements;

7. Surplus cash can be retained by the business

entity (e.g. if a policy pays R10 million and the loan

owing is only R7 million, it could result in the fastest

R3 million that business has ever made); and

8. Surplus cash can be utilized for other needs (e.g.:

settle loan accounts owed to shareholders).

The Importance of a SuretyshipProtection AgreementIt is imperative that the business entity (principal

debtor) and the person who has stood surety

(surety) enter into a formalised and binding

agreement. The importance of such an agreement

is that it will compel the business entity to utilise the

policy proceeds to settle the loan, and as a result

of such action, the estate of the deceased is

protected. Further, the said agreement may also

direct what the business must do with surplus cash

i.e. utilise it to settle any outstanding shareholder

loan accounts.

If you have signed surety, then you should

possibly consider a Surety Protection Policy in order

to ensure that your estate is not left wanting!

Contact an NFB Private Wealth Manager on 043

735 2000 or [email protected] for more information.

LISTED PROPERTYAT A GLANCELISTED PROPERTY

The upward trend is clear. By ,Bryce WildFinancial Advisor - NFB East London

Source: TradeCIS

200

250

300

350

400

450

500

550

600

DATE

SAPY Index - SA Listed Property

SAPY

Linear (SAPY)

SA

PY

IN

DEX

VA

LUE

AT A GLANCE

sensible finance november13 21

SENSIBLE PROPERTYSENSIBLE PROPERTYSENSIBLE PROPERTY

During the past five years, listed property has beenSouth Africa's best performing asset class, withannualised returns outperforming those of equities,cash and bonds. However, as has been the topic ofmuch discussion over the past few months, SouthAfrican listed property prices have recently comeunder pressure with many investors asking thequestion why the sudden drop in capital value?

The main reason for this drop in capital valuecan be attributed to the global improvement inbond yields. Analysts have suggested that theglobal search for yield" has resulted in a closecorrelation being formed between listed propertyand bonds, being the two main yield-bearing assetclasses. The main difference between the two isthat listed property provides capital growth and anescalating income, whereas bonds generally donot. As bond yields have moved upwards, bothbond and property prices have come underpressure.

It is important for investors to keep in mind thatproperty, as an asset class, can be volatile - thisapplies particularly to the capital componentthereof. Capital growth cannot be expected tocome in a predictable, straight line. This is illustratedin the graph below, where the returns for theperiod February 2008 to August 2013 are shown.What is important to note, is that despite the recentdrop off in property prices, the upward trend isclear. Despite some volatility along the way,investors have enjoyed outstanding capital growthwhile still enjoying yields of around 7% per annum.

We are all aware that Ben Bernanke, the head ofthe US Federal reserve, has been looking to easequantitative easing for quite some time. When theUS government finally decides that their economyhas recovered enough from the 2008 financial crisisto cease the purchasing of their governmentbonds, the demand for US bonds will decrease. Thismay well result in an increase in interest ratesaround the world which could, in turn, lead tofurther drops in the capital value of listed property.However, as mentioned above, investors will stillreceive the yield portion of their returns. This isexpected to continue escalating at approximately5% per annum over the next few years and is likelyto offset some of the losses in capital that mayoccur. It is expected that capital appreciation oflisted property will continue the upward trend it hasbeen following in the long term.

The South African listed property marketpresents numerous opportunities to investors. SouthAfrican listed property companies, Redefine andGrowthpoint, have both recently launchedAmerican depositary receipt (ADR) programmes,thereby making investing in South African listedproperty more accessible to the world. Foreignownership of most of the large South Africanproperty counters is still below 20%, a position thatmany would like to rectify. The introduction of RealEstate Investment Trusts (REITS) has also madeinvesting in listed property in South Africa moreaccessible, while also providing investors taxbenefits in the form of their pass through tax status.

Investors would be wise to bear in mind thatlisted property is a long-term investment and short-term fluctuations in the capital value of theirinvestments are to be expected. This is but one of afew components that make up the returns offeredby listed property. Over the long term, capitalgrowth should trend upwards - analysts remainoptimistic, and feel that over a 5-year investmenthorizon, listed property as an asset class can delivertotal returns of 10 - 12% per annum.

The historic performance of the listed propertymarket strongly supports its ability to withstandmarket drops. This was evident during the fallsexperienced during 2006 and 2008, where thefundamentals were in place and the incomedistributions were still growing as is the case today.

Contact an NFB Private Wealth Manager on043 735 2000 or [email protected] for moreinformation on listed property and whether or not itis suitable you.for

after the painting job is almost done

Melany Botes & Robyne Mooreplanting the little peach tree

Charl He

rselman &

Bryce

Wilddigg

ing ahole

for

theban

anatree

MANDELA DAYOUR CONTRIBUTION TO

Touching lives in our community you too

can make a difference! y ,B Robyne Moore

NVest Holdings,Financial

MANDELA DAYOUR CONTRIBUTION TO

N est staff with all the IceboV

Day Care Centre children &

Pat from LAFN


The campaign

message for Mandela Day is

Nelson Mandela has fought for social justice for

67 years. We're asking you to start with 67 minutes.

The first Mandela Day was held in 2010 and has

since been celebrated every year on Madiba's

birthday, the 18th July. This is an international

celebration in honour of Nelson Mandela with the

objective being to inspire all people to be of service to

one's fellow human. By taking action in some way, no

matter how small, we are able to help others and

thereby transform the world to make it a better place.

With this in mind, and as part of our corporate

social responsibility, NFB took the decision this year to

be hands on. NVest Financial Holdings (of which NFB

is a subsidiary) has nominated the Loaves and Fishes

Network (LAFN) as its charity. LAFN is an award-winning,

East London based NGO that offers support to

impoverished community initiated crches (currently

supporting 29 crches) through its three year Early

Childhood Development practitioner training

programme, by feeding the children who attend the

crches with two nutritious daily meals and by trying to

find funding to improve, refurbish and renovate general

crche infrastructure. Through this charity, we chose

Icebo, a township crche and one of the

aforementioned 29 crches supported by LAFN,

as the beneficiary for this year's Mandela Day.

Funds were raised through monetary

donations, company civvies days and cake sales.

Barry Moldenhauer, from Mdantsane Build It, very

kindly donated 40 litres of paint, turpentine and

brushes. With the funds raised we were able to buy

much needed educational equipment such as play

dough, books, puzzles, colouring-in books, crayons,

scissors etc. Fresh oranges and apples were taken out,

as well as some chips and sweets. For fun we added

balls, skipping ropes and motorbikes, as the playground

only consisted of a two-swing set and a make-shift

sandpit.

The Icebo Day Care Centre is a shack in a rural

area and the children who attend are between the

ages of 3 and 6. On any one day there can be as few

as twelve children and as many as thirty. Unfortunately,

as transport is a scarce resource and the children

sometimes have very far to walk, some days they do

not attend crche at all which means that, besides

missing out on vital cognitive, physical and emotional

stimulation provided by the dedicated and trained

childcare practitioners, it also means that those

children will probably not receive a nutritious meal that

day.

On the day, a large group of staff from across the

NVest companies, was taken out to Icebo by Pat

Mtintsilana, General Manager of the LAFN, to

participate in planting some trees and seedlings in the

crche's veggie garden. Some staff played with the

children, painted with them and at one stage there

was an informal soccer match being played.

Unfortunately, we were unable to paint the exterior

of the crche as the weather did not play its part, but a

week later a small group of enthusiastic staff again

ventured out. By lunchtime we were all done and

dusted and Icebo Day Care Centre now has a fresh

coat of paint!

We cannot change the world overnight and it is

not possible to help everyone, but it is my belief that

every individual has the ability to impact the life of

another. And as human beings, I believe it is our duty to

do as much as we can, where and when we can

especially for those who cannot help themselves.

So when July 2014 rolls around, ask

yourself....WHAT CAN I DO TO

MAKE A DIFFERENCE ON

MANDELA DAY?

ADMINISTRATIONOF AN ESTATEAND OBSTACLESIN THE PROCESSPossible obstacles which may

be encountered.

By -Debi Godwin, Director

Independent Executor & Trust

49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210

Telephone: Fax: ( ) | e-mail:(043) 735 4633 086 693 3356 / 043 735 3942 [email protected]

At Independent Executor Trust we are committed to personalized service and&

individual attention. With combined experience of 65 years, we specialize in the

Drafting of Wills, Administration of Estates Testamentary Trusts.&

25sensible finance november13

SENSIBLE PROCESSSENSIBLE PROCESSSENSIBLE PROCESS

In South Africa a deceased estate is

administered as prescribed by the Administration

of Estates Act, and distributed in accordance

with a valid registered will or the Intestate

Succession Act, or a combination of both Acts.

Numerous other Acts and regulations pertaining to,

among others, income tax (including VAT and

CGT), estate duty and donations tax, and

maintenance of a surviving spouse, may also

apply.

When a person with assets dies, his/her estate

must be registered at the office of the Master of

the High Court as soon as possible. Certain

documents, as well as a will, if any, must be

submitted. In the case of estates, including joint

estates, with a gross value of less than R125 000 the

Master may waive the official appointment of an

executor to carry out the prescribed administration

process. In all other cases the Master will appoint

an executor.

The official administration process to be

followed by the executor will then commence.

One of the executor's first duties is to advertise to

creditors, obtain details of estate assets, have these

valued if necessary, and to collect certain assets.

Known and reported liabilities must be evaluated

and attention should be given to income tax,

among others. The executor must submit a

liquidation and distribution account to the Master

within six months, or request a deferment. This

estate account shows all assets and liabilities,

distribution to heirs, and details of assets outside the

estate payable directly to beneficiaries.

The Master examines the estate account and

then issues a questionnaire. Once approved, the

account must be advertised and be open to

inspection for 21 days at the Master's office or, in

most cases, at the nearest magistrate's office. If

written objections are received, they must be dealt

with in the prescribed manner. If there are no

objections, or after dealing with the objections, the

executor must pay creditors and heirs and transfer

others assets to the heirs within two months.

In most cases this should not be a complex

process and it should be completed within a

reasonable period of time. However, there are

many obstacles that could delay the process for

months and in some cases even bring it to a

complete standstill. Among the most common

obstacles are poor service by government and

private institutions, incorrect and impracticable

wills, cash shortfalls, disputes and discord among

heirs, a lack of information, the disarray of the

deceased's tax and other matters, lawsuits before

and after death, and in the event of unnatural

death, legal inquests as required for the payment

of policies in certain cases.

27

Q: A common questioned that gets asked in myfinancial planning meetings with clients is How

much do I need in order to retire comfortably?

What is the magic number that I should be trying to

achieve and how do I get there?

A: Each person's financial situation is different andwe need to take into account each individual's

needs and requirements when it comes to

retirement. There are many assumptions and

variables that can change along the way which

makes it difficult to be exact. What we as Financial

Advisors try to do is give the client some idea of

what the future may look like if they continue with

their current strategy or what the consequences

would be of changing strategy. A conservative

view on growth and inflation is taken to ensure that

there are no major surprises in the actual outcomes

later in life. We prefer to paint a worst case

scenario picture than a rosy outlook that might

disappoint.

So the general rule of thumb is that a client will

need 15 to 20 times his final annual salary in order

to ensure that he has sufficient capital to provide a

sustainable income. How do we get to this

number? Let's assume that the final salary is R30 000

pm or R360 000 p.a. This, times 15 would give us a

number of R5 400 000. This amount invested with a

withdrawal rate of 5% would give you a monthly

income of R22 500 pm which is 75% of the final

salary. The 5% withdrawal rate should ensure that it

is sustainable and that there is some growth in the

capital and income over time to hedge against

inflation.

Inflation is the enemy when it comes to

retirement and it is so important to try and ensure

that one is able to maintain the purchasing power

of your money. In order to ensure that you have

enough, it is not only about how much you invest,

but also how the investment performs. Exposure to

growth assets such as equities and properties is

vital, as these assets have proven in the long run to

give above average returns over inflation.

A 30 year old earning R30 000 pm today will be

looking at a final salary of R320 297 pm at age 65

taking into account inflation at 7%. How does he or

she make sure that they get to the capital required

of R57 653 460 based on our sums above? If one

just relies on a simple 10% of salary contribution to a

retirement fund you are going to fall short of your

goal as illustrated in the graph below.

As one gets older and delays the retirement

process the higher the percentage of salary

required to invest becomes. The younger one starts

to save the better. To achieve the higher growth

rates one generally has to take on risk and invest in

growth assets such as property and equities. One

cannot rely on these growth rates as a given and

therefore it is important that one invests as much as

possible whilst still maintaining a balanced lifestyle.

So in summary, start young, invest in growth assets,

get good advice and assess your retirement plan

regularly.

For a needs analysis on your retirement

portfolio feel free to contact one of our Private

Wealth Managers on 043 735 2000 or

[email protected]

Travis McClure

Please address all Questions to: Travis McClure,

NFB Sensible Finance Q&A, Box 8132, Nahoon,

5210 or email: @nfbel.co.zainfo

Sensible Finance - Questions and Answers is an advice columnthat will allow our readers the opportunity to write to a professionaland experienced financial advisor for advice regardinginvestments, personal finance, life and/or risk cover. TravisMcClure will be answering any questions that you may have.

% of salary

contributed to

Pension/RA

Growth Rate % of final salary

achieved at

retirement age

65

10% Inflation + 3% 20%





SENSIBLE Q A&SENSIBLE Q A&SENSIBLE Q A&

Get your Dividendfrom Vividend

28




Vividend Income Fund Limited is a Real

Estate Investment Trust (REIT) that is listed

on the JSE. The units trade at R4.90 each

(at 3 October), giving it a market capitalisation of

R1.3bn. This places the fund at the smaller end of

the listed property sector.

The fund has been listed for a few years and

had in May undertaken a capital raise at R5.40 per

unit, thereby increasing the market capitalisation

by about 50%. The proceeds were used to fund

significant acquisitions.

We have a forecast distribution of 50 cents per

unit, which places the units at a yield of just over

10%. Distributions from REITs are taxed in the hands

of individual taxpayers as interest. There is no tax on

such distributions where the units are held in a

personal share portfolio under a retirement fund

structure (including a living annuity).

This yield places the fund near the top end of

listed property in South Africa. By way of

comparison, Growthpoint Properties (with a market

capitalisation of R48bn has a forecast yield of

6.25%) and Redefine Properties (with a market

capitalisation of R29bn) has a forecast yield of

7.25%. Given the size and benefits that this brings,

there is a major difference between a fund like

Vividend and these two property giants, but we

believe that both offerings have a position in a well

diversified portfolio.

We believe that Vividend's distribution is secure

and over time should grow in line with the sector.

Given the size of the fund, track record to date and

peer ratings, we would argue that a forecast yield

of 8.5% is more appropriate, which would imply a

fair value of around R5.90 per unit, which is 20%

above the current trading price.

There is strong selling in the market of Vividend

units, which has pushed the unit price down from

the R5.40 rights issue price. We believe that this

selling is coming from one or two asset managers

who are in the position of having to reduce their

holding for reasons other than fund specific

reasons. This has created increased liquidity and

given other investors (such as ourselves on behalf of

clients) the opportunity to acquire a meaningful

exposure.

Management have shown that they are

circumspect when acquiring properties and we

were encouraged that they walked away from a

number of announced deals, where based on a full

due diligence, their performance metrics were not

met. This suggests that management are not deal-

driven for the sole purpose of bulking up the fund.

Vividend plans to release its results for the year

to August 2013 on 23 October and we should have

a clearer picture of the trading and prospects at

that stage.

Most of the property portfolio is in the Western

Cape and Gauteng and the fund is managed out

of Cape Town. A significant property asset of the

fund is Access Park in Cape Town. The fund has

recently taken control of this asset and plans to

further develop this outlet facility into a premium

value proposition.

We believe that Vividend (much like Redefine

International was at the time that we were buying

for our managed book) is a mispriced asset that

offers a rerating potential. It also offers a generous

yield while we wait for this unlocking of value to

take place. For this reason, we are buying Vividend

with a long term view for both general equity

portfolios and into our managed income

mandates, with an allocation around the 5% level.

By CA (SA),Rob Mc Intyre,

Director and Stockbroker NVest-

Securities

SENSIBLE INVESTMENTSENSIBLE INVESTMENTSENSIBLE INVESTMENT


NFB has a separate specialist Short Term Insurance Division, as well as now offering specialist groupcompanies in the fields of stock broking, wills and the administration of deceased estates.

Anthony Godwin (RFP, MIFM) - ManagingDirector and rivate ealth anager, yearsP W M 25experience;

Gavin Ramsay (BCom, MIFM) - ExecutiveDirector and rivate ealth anager, yearsP W M 20experience;

Andrew Kent (MIFM) - Executive Director andShare Portfolio Manager, years experience;20

Walter Lowrie - rivate ealth anager,P W M 28years experience;

Robert Masters (AFP, MIFM) - rivate ealthP WM 28anager, years experience;

Bryan Lones (AFP, MIFM) - rivate ealthP WM 22anager, years experience;

Travis McClure (BCom, CFP ) - rivate ealth P WM 15anager, years experience;

Marc Schroeder (BCom Hons(Ecos), CFP ) -

P W M 9rivate ealth anager, years experience;

Phillip Bartlett (BA LLB, CFP ) - rivate ealth P WM 11anager, years experience;

Gordon Brown (CFP ) - , Regional Manager PE7 years experience;

Mikayla Collins (BCom Hons , CFP ) - rivate( ) P

W M 2ealth anager, years experience;

Glen Wattrus (B.Juris LL.B CFP ) Private Wealth

Manager, 1 years experience6 ;

Julie McDonald (BCom, CFP) FinancialParaplanner, 3 years experience;

Bryce Wild (B.Com (Hons)) FinancialParaplanner, 1 yr experience

Leona Trollip (RFP) - Employee BenefitsDivisional Manager and Advisor, 3 years7experience;

Leonie Schoeman (RFP) - Healthcare DivisionalManager and Advisor, 1 years experience;6

Nonnie Canham (LLB) Healthcare Advisor, 2years experience.

NFB have a STRONG, REPUTABLE TEAM OF ADVISORSwith a between them:WEALTH OF EXPERIENCE

NVest Securities (Pty) Ltd

NFB House, 42 Beach Road,

Nahoon East London 5241

PO Box 8041, Nahoon 5210

(043) 735-1270,Tel:

(043) 735-1337Fax:

[email protected]:

www.nvestsecurities.co.za

The Eastern Cape's first home-grown

STOCK BROKERAGE

NVest Securities is an Authorised Financial Services Provider

nfb sensible finance magazine issue 25

Documents

t e w e

bryce wild nfb east

travis mcclure nfb east

nfb private wealthmanagement

e n tissue

connellan nfb eastlondon

lunga nkonkinfb east

andrewduvenage nfb gauteng