Thursday, December 11, 2008

The market is showing positive signs

After having experienced extreme volatilities in the last few months, the market is now showing encouraging patterns pointing to higher prices / index values. The first chart is the FTSE/JSE Top 40 index.

The chart shows the Top 40 index has completed an inverse Head & Shoulders pattern, and it has broken out, pointing to a target of 23,640.
The second chart shows Sasol, which has a similar price movement. It too has completed an inverse Head & Shoulders pattern, and it is now pointing to a target of R365.

Saturday, October 25, 2008

Successfull Investing Seminars

We are planning for a four-part seminar on sucessful investing in January/February 2009, with Yours Truly being the presenter. This seminar targets:

- Investors who want to gain all-round, in-depth knowledge on the subject of investment;
- Investors who want to manage their own investment portfolios and be successful;
- People who want to study to become CFA;
- Finanial planners who want to become specialists in investment planning.

The seminar will consist of 4 four-hour sessions, from 9am to 1pm, on 4 consecutive Saturdays. The seminar will cover:

- The concepts of money and investments;
- Investments and financial planning;
- The basics of investments;
- Various types of investments;
- Fundamental analysis;
- Introduction to technical analysis;
- Behavioural finance and investor psychology;
- The practical steps of selecting an investment.

If you are interested in finding out more about the seminar, please email

Regards, Kevin Yeh

Is it time to invest in the stock market?

With the FTSE/JSE All Share Index falling from its peak of 33,310 on 22 May to 18,459 yesterday (24 October 2008), equating to a fall of 44.6% in percentage terms, the stock market certainly has been a horrible place, with most individual and institutional investors losing quite a lot of money. And it looks like the market could fall further before it starts to recover.

However, I think it's time to get into the market. From the fundamental point of view, the market starts to show great value, with many solid companies trading at very low PE's. From the technical analysis, statistical indicators indicate the market is very oversold, and positive divergence has been in place for some time. I think right now it offers once in every five years opportunity to buy into the market at cyclical lows.

The strategy for investors who invest in unit trusts:

- if you have been invested in money market funds, you should consider switching part of it to domestic equity funds;
- if you have been invested in offshore bond funds, offshore cash funds or offshore asset allocation funds, you should consider taking advantage of the current rand weakness, by cashing in on the handsome returns on these offshore funds and switching them to domestic equity funds or domestic value funds.

Prudential takes the crown as the top unit trust manager

Prudential Portfolio Managers has overtaken Allan Gray as the top-performing unit trust management company based on the risk-adjusted performance of most of its funds.

Last quarter Prudential was ranked third in the PlexCrown management company rankings after Allan Gray and runner-up Investec.

But in the last few days of this past quarter to September 30, Prudential's overall PlexCrown rating overtook that of Allan Gray, with Prudential attaining an average score of 4.13 PlexCrowns over Allan Gray's 4.00.

In addition, Oasis moved up from sixth position to third and RMB from fifth to fourth.

The PlexCrown ratings rate all qualifying unit trust funds on four different measures of risk-adjusted performance over periods up to five years. (For more details on how these are calculated, visit the PlexCrown website at

These ratings - weighted towards longer-term performance - are used to determine an overall score for each unit trust management company. The rankings should show you which company is performing consistently well over all their funds without putting your investment at undue risk.

Click here to read the full article.

Thursday, October 9, 2008

The returns on unit trusts over long term

Recently I did a bit of research on to find out the long-term return of unit trust funds. I summarise the results as follows:

Offshore funds -
There are 92 funds with 10 years or more track record.
Over the 10 year period, the median return is 9.69% per annum (Investec GSF Sterling Bond Fund)
The best return is 27.43% per annum, achieved by the Investc GSF Global Energy Fund A.

Domestic general equity funds -

There are 4 funds with a track record of 20 years or more.
The best return is 18.35% p.a., achieved by Investec Equity Fund
The worst return is 13.95% p.a., produced by Sanlam General Equity Fund

There are 17 funds with a track record of 10 years or more.
The median retun is 12.97% p.a. (Gryphon All Share Tracker Fund)
The best return is 17.12%, achieved by Futuregrowth Albaraka Equity Fund
Investec Equity Fund has been consistent over the long term, achieving second place with an annualised return of 16.57% p.a.

The above figures demonstrate the inflation-beating returns produced by equity funds, with returns exceeding inflation by about 5% to 7% per annum on average.

Friday, October 3, 2008

The worst financial crisis since 1929 - or ever?

The latest headlines on Yahoo! Finance best describes the financial crisis and economic recession the US is facing:

  • Stocks decline on unemployment, factory reports
  • Tighter credit begins to hit manufacturing, jobs
  • Financial companies borrow record amount from Fed
  • House leaders win key converts on bailout bill
  • Financial crisis moves from Wall St to the mall

On the same day the Dow declined 348 points or 3.22% to 10,482. It has fallen by more than 27% since it reahed 14,280 earlier this year. And there are signs showing it could fall further.

The FTSE/JSE All Share Index, which reached a record 33,310 on 22 May on the back of booming commodity prices, has fallen sharply to 22,561 yesterday, a 32% fall. The mining heavyweights, Anglo American and BHP Billiton, have halved in value.

Some analysts say we are in the worst financial crisis since the great depression in 1929 - 1932. Probably the worst financial crisis in the modern history?

Wednesday, October 1, 2008

Dealstream, where art thou?

Wow, what a bombshell!!!

On the afternoon of Friday, 19 September 2008, I received a phone call from an investor, asking me whether I am aware of the problems at Dealstream. He pointed me to a news article on fin24, which I duly read with amuzement and surprise. I then tried to contact Dealstream using the usual 0860 TRADER number, and the phone was just ringing.

The business radio shows on that night and the following Monday and Tuesday talked a lot about Dealstream and what happened. My slight optimism was destroyed, knowing it would take a long time to get my money back, if at all.

What happened at Dealstream is a devastating blow to me and my personal financial planning. I have my whole CFD/futures portfolio with Dealstream, I have been a client of Dealstream for two years, and I have not had a material problem with them. And now this!

I have been rallying fellow affected investors to form a colelctive action group. I have contacted Investec, RMB and FSB, however I am still in the dark as to what is or has happened with my portfolio. Only time will tell.

As a financial planner, I am stumped by this one. There are certain things you can try and plan for, and there are things you can't plan for.

Monday, February 25, 2008

Many shares present significant value

The stock markets have the ability to misprice shares. Some shares are priced too highly, while some shares are priced too cheaply from time to time.

An example is the retail sector of the JSE. Just a year ago shares like JD Group, Lewis and Foschini continued to make historical highs and were trading between 12 and 15 times PE. At that time, they were some of the darlings of the investors, and their share prices were buoyed by investors' optimism.

However, a year later, their share prices have relinquished, due to the impact of the high interest rates on consumer spending and the gloomy outlook for the retail sector. JD Group at one stage fell 66% from its high of R106, while other retail companies fell between 50% and 60% from last year's highs. Right now they are dumped by investors, and their share prices are depressed by investors' pessimism. Their historic PE's have fallen to between 6 and 8, a level last seen in 2002 - 2003.

I reckon selected retail shares have fallen so much that they now off value to investors. Sure, consumer spending is curbed in the high inflation, high interest rate environment, and the Eskom power crisis doesn't help either. However, the markets have already discounted all the bad news, these retail shares are more likely to go up than down.

Other shares we consider to offer value at the moment are:

ABSA - the results were announced last week, showing banks' earnings are still very solid
Standard Bank - very positive trading statement, will still continue to grow
Grindrod - a solid shipping company, is growing strongly into the financial services sphere
Naspers - has fallen significantly from R200 to the current R145. Its aggresive but successful acquisition strategy will ensure growth in its chosen offshore markets.

Monday, February 4, 2008

Our yearly model portfolio for 2008

Finally, our 2008 model portfolio is revealed! Before we go into the make-up of our portfolio, let us remind investors of our rigorous investment process:

1. We conduct an analysis of the global politics and economy.
2. We analyse the South African politics and its economic prospects.
3. We evaluate the prospects of major industries in South Africa.
4. We decide on the industries we should consider to be included in our portfolio.
5. Shortlist companies we should consider. These companies generally have low PE ratios and good prospects.
6. Conduct a fundamental analysis on each company in the shortlist.
7. Place a value on the company using our proprietary valuation model.
8. Conduct a technical analysis on each company in the shortlist.
9. Decide on the individual stocks to be included in the portfolio and their weightings.

There are 12 shares in our 2008 portfolio (in brackets are the closing prices of 31/12/2007):

1. Datacentrix (R4.79) - Datacentrix is an IT solutions company. It has been growing steadily since the 2000 dot com bubble burst. There has been a recovery in IT spend, and the economic growth in South Africa should continue to increase the demand for IT solutions offered by Datacentrix over the next 3 to 5 years.

2. Famous Brands (R19.50) - Famous Brands manages and develops well-known fast food brands such as Wimpy, Steers, Debonairs, Fish Aways and Brazilian Coffees. Due to lifestyle changes and the emerging black middle class' increasing acceptance of Western fast food, Famous Brands should continue to grow on the back of increased market demand. In addition, Famous Brands is expanding internationally, with its UK acquisition showing signs of success. Its international expansion strategy will add scope to its profit growth in the future.

3. Iliad (R14.79) - Iliad is a mid-sized wholesaler and distributore of building materials. It has been on an acquisition trail over the last few years, consolidating the fragmanted building supplies industry. It has grown successfully, and it should continue to benefit from the strond demand for building supplies from the infrastructural spend.

4. Pinnacle (R4.76) - Pinnacle is a successful manufacturer and distributor of advanced ITC equipment. It manufactures and sells the Proline brand of PCs and notebooks. Pinnacle has a good growth strategy, and with the assistance of its BEE partner, it should continue to grow quickly over the next few years.

5. Standard Bank (R100.08) - One of the Big Four banks, it announced a deal with the Industrial and Commercial Bank of China last year. The deal should help Standard Bank grow its presence in select emerging markets, thus positive for its future earnings.

6. ABSA (R111.00) - Also one of the Big Four banks, its share price has languished due to the effect of the US subprime crisis on the banking industry worldwide (despite ABSA having little exposure to the subprime risks), as well as the anticipated increased bad debts in the current high interest rate environment. However, its share price has fallend significantly, and we believe it now offers value.

7. DAWN (R17.50) - Distribution and Warehouse Network is a manufacturer and distributor of building supplies. It has grown quickly over the last few years, with presence in many African countries. Its excellent logistics system is its competitive advantage. It came first in last year's Sunday Times Top 100 Companies.

8. Northern Platinum (R40.06) - Northam is a smaller Platinum miner, with mines in the North West and Limpopo provinces. Because of defficulties in mining the ore body, safety related stoppages, as well as electricity load shedding, its production is going to be lower compared to last year. This should somewhat be compensated by the historical high platinum price and a weakening rand.

9. Steinhoff (R19.40) - Steinhoff is an international manufacturer and distributor of quality furniture. It produces furniture in low-cost markets such as Eastern Europe, then sells them in developed countries such as the Western Europe, Australia and New Zealand. They are expanding into the Asian markets. There is room for them to grow over the next few years. However, investors have been selling its shares because of fears of the slowing global economy hurting demand for durable goods such as furniture. At the current price of R16, we believe it is an excellent opportunity to acquire the shares in an excellent business cheaply.

10. Foschini (R48.30) - The Foschini Group owns over 1,200 well-known brand stores such as Foschini, Markhams, Totalsport, !Exact, American Swiss and @Home. It retails fashion, jewellery, accesories, sports equipment, outdoor equipment and lifestyle goods. Due to high interest rates, reduced disposable income of the consumers and a slowing South African economy, its turnover this year is likely to be lower than last year's in real terms. However, with the PE currently at around 7, and its high dividend yield, we rate this company a "buy".

11. Goldfields (R99.00) - Goldfields is the second largest gold mining company in South Africa, and one of the top 10 gold miners in the world. Over the last few years its production in South Africa has been declining; coupled with increasing operating costs, Goldfields has struggled to increase profits. What is in its favour are the rampant gold price, as well as the weakening rand. In addition, Goldfields has its eyes on China: It has formed an alliance with Sina Gold, in order to diversify its mining assets geographically. This should benefit Goldfields in the near term.

12. Lewis (R45.95) - Lewis Group has more than 500 stores in Southern Africa, selling furniture, household appliances and consumer electronics to the low- and middle-income segment of the market. Like the Foschini Group, it is negatively impacted by high interest rates and reduced purchasing power of the consumers. However, its share price is at a PE ratio of less than 7, which starts to offer value.

Happy Investing!

Tuesday, January 8, 2008

Our yearly model portfolio continues to excel

Since we started creating our yearly model portfolio at the beginning of 2002, our yearly model portfolios have been generating excellent returns for readers who followed and implemented them diligently.

Our yearly model portfolio for 2007 is no exception. Our portfolio generated a return of 50.6%, comfortably outperforming JSE Alsi's 19.2%. The star performers in our portfolio are:

  • Digicore - the share price rose from 421 cents to close at 970 cents. Including dividends, the return is 133%
  • Acc-Ross - the turnaround stock, the share price rose from 32 cents to 80 cents to give a 150% return.
  • Enviroserv - a waste management company, which gave a 95% return last year.

The laggards in our portfolio are:

  • Telkom - with its declining earnings and unsuccessful corporate actions,its share price has ended flat for the year. Its generous dividends boosted its return to 5%.
  • Mvela Resources - its has been a roller coaster ride, with the share price rising to more than R60, only to give up most of the gains to end up the year with a 7% return.
  • PSG - affected by the general negative sentiments towards the financial sector, it has given a return of 2%.

We will soon be releasing our yearly model portfolio for 2008 in the second half of January. For investors who would like to pay a fee in order to receive the information before then, please write to

What are the performances of top managers in 2007?

Readers of this blog know I am a big fan of the following asset managers: Allan Gray, John Biccard of Investec Value Fund, Tim Allsop of the Nedgroup Rainmaker Fund and Anthony Sher (who was until recently the portfolio manager of Stanlib Small Cap Fund).

So how did they fare in 2007? (The 12-month performance listed below is on sell-sell basis)

Allan Gray Equity Fund - 18.83%
Investec Value Fund - 10.21%
Nedgroup Investments Rainmaker Fund - 15.48%
Stanlib Small Cap Fund - 48.58%

The All Share Index Total Return - 19.2%

While Allan Gray, Investec Value Fund and Nedgroup Rainmaker Fund have underperformed the index, I believe it's a short-term phenomenon. Due to their investment approaches, they may underperform from time to time, but they will likely outperform the index over the long term.

Top performing unit trust funds for 2007

With 2007 just behind us, Equinox has announced the top-performing 25 unit trusts for 2007. They are dominated by the mining and commodities funds, smaller companies funds as well as flexible allocation funds.

An analysis of the top-performing unit trusts by various factors follow:

By fund classification:
Mining and Resources: 9 funds
Smaller companies: 4 funds
Flexible asset allocation: 6 funds
Other: 6 funds

By asset management company:
Stanlib - 4 funds
Sanlam / SIM - 4 funds
Various - 17 funds

Top performing unit trust:
Stanlib Small Cap Fund - 48.58%