Our 2014 Model Share Portfolio

It's time to reveal our 2014 model share portfolio!

We have retained many shares from our 2013 portfolio. In total we have retained 8 shares and replaced 4 (Barclays, Exxaro, Samsung and Sasol). Again our share portfolio consists of 12 shares. This year we still lean towards global large caps. The shares are: AIG (American Insurance Group), Apple, Bank of America, BHP Billiton (world’s largest mining company), China Construction Bank, Coca-Cola, Google, Microsoft, Nestle, Pinnacle (IT),Toyota (Japan) and Volkswagen (Germany).

AIG: We expect AIG to continue the path of recovery of profits this year.

Apple: It faces ever increasing competition from Google, Samsung and Chinese rivals. It will be difficult for it to maintain profits this year, but we retain it in our portfolio as it is one of the largest technology companies with the ability to continue to innovate and stay relevant.

Bank of America: One of the largest banks in the US, its profits have steadily recovered after the 2009 global financial crisis, and we expect its profits to increase this year.

BHP Billiton: The world’s largest mining company, it will benefit from a global economic recovery and a weak rand.

China Construction Bank: One of the largest banks in the world, it has been trading at multi-year lows. At low PE, it presents value, although the shadow banking in China presents dangers.

Coca-Cola: One of Warren Buffett's long-term holdings, we also like the stock for its global reach, quality products and strong brands. In particular, its defensive nature as a stock.

Google: A world technology giant, its technological advances bring about lifestyle changes. Its driverless car development and other technological advances will hopefully enhance its future revenue streams.

Microsoft: Last year it bought Nokia smartphone business, with the hope of consolidating its market share of mobile devices. It may be playing lots of catch-up to Apple and Google, but it continues to have an entrenched business office software market.

Nestle: A global food and beverages company, it is renowned for quality products. Blue chips stock.

Pinnacle: An IT solutions provider, it has been growing quickly over the last few years. Although the weaker rand means higher import prices, which will depress its profit margin, this company has lots of room for growth. Also its management has proven itself in terms of management, strategy and making the right acquisitions.

Toyota: A weaker Yen will continue to help its competitiveness in terms of exporting vehicles.

Volkswagen: Its car sales should continue to benefit from a growing global middle class.

Review of our 2013 Model Share Portfolio

Since 2002, we have been publishing our model share portfolio at the beginning of each year. It has now been 13 years. Last year our share portfolio of 12 shares consists of AIG (American Insurance Group), Apple, Barclays (UK), BHP Billiton (world’s largest mining company), Exxaro (Coal Miner), Google, Nestle, Pinnacle (IT), Samsung, Sasol, Toyota (Japan) and Volkswagen (Germany). Let’s see how this portfolio has done in 2013.

AIG: After the 2008 / 2009 global financial crisis, AIG was on the brink of bankruptcy. It was taken over by the US government, which became its largest shareholder. After restructuring, it focused on its core insurance business. Its profit margin recovered. It started the year at USD35.30 per share, closed at USD51.05. It declared a dividend of 10 US cents. The return is 79% in South African Rand terms.

Apple: One of the leading technology brands in the world, it faces fierce competition from Samsung and Google Android phones. It is also overtaken by Chinese brand smartphones in China. However it continues to innovate, and it has lots of die-hard fans around the world. It started the year at USD532.17, closed at USD 561.02. Total dividend USD11.80. The return is 33% in South African Rand terms.

Barclays: A global commercial bank, it has a major presence in Africa through ABSA / Barclays Africa. It started the year at GBp 2.62, closed at GBp 2.72. It paid a dividend of 7 pence. The return is 33% in South African Rand terms.

BHP Billiton: The world’s largest mining company, its profits have been impacted by the lower metals prices as a result of slow global economic recovery. It started the year at R292.89 per share, closed at R323.89, total dividend R11.24. The return is 14%.

Exxaro: The laggard in our portfolio. Lower coal prices, coupled with ever increasing operating costs, lead to lower profits. It started the year at R169, closed at R146.46, dividend R3.85. The return is -11%.

Google: A world technology giant, its technological advances bring about lifestyle changes. It started the year at USD707.38, closed at USD1,120.71, no dividends. The return is 95% in South African Rand terms.

Nestle: A global food and beverages company, it is renowned for quality products. It had a stable growth in turnover. It started the year at 59.60 Swiss Francs, closed at 65.30 Swiss Francs, dividends 2.05 francs. The return is 43% in South African Rand terms.

Pinnacle: An IT solutions provider, it has been growing quickly over the last few years. Last year it has entered the software solutions arena. It started the year at R18.37, closed at R23.15, dividend R0.41. The return is 28%.

Samsung: A leading global technology and home appliance brand, it had to cut into its profit margin to remain competitive. As a result its share price has fallen, from 1,522,000 Korean Won at beginning of year to 1,372,000 Won at end of year. Dividend 8,000 Won. The return is 13% in South African Rand terms.

Sasol: It has benefited handsomely from a weaker rand and a stable international oil price. It started the year at R362.80, closing at R514.50. Total dividend R19. The return is 47%.

Toyota: A weaker Yen increased the competitiveness of the Japanese car manufacturing sector, which benefited Toyota. It opened the year at 4,005 Yen, closed at 6,420 Yen. Dividend 90 Yen. The return in South African Rand terms is 65%.

Volkswagen: Its car sales has been increasing thanks to a growing global middle class. It started the year at EUR162.75, closed at EUR196.90. Dividend EUR3.50. The return in South African Rand terms is 58%.

Based on our Company’s internal share weightings, our model share portfolio has returned 41.9% in Rand terms. This compares favourably against JSE’s return of 21.1%. In other words, our portfolio has outperformed the JSE by 20.8%!

We will announce our 2014 model share portfolio in our next newsletter.

Chasing performance - A sure-fire way to lose money in the long-term

Source:

Money Matters Author: Warren Ingram*| 05 November 2013 23:47 Chasing performance

A sure-fire way to lose money in the long-term.

The stellar performance of the JSE over the last two years is creating understandable anxiety about a potential market crash. At the same time, it is also luring some investors into dangerous territory as they start to follow funds and shares that have already performed brilliantly in the hope that this performance will continue. As history has repeatedly taught us, chasing performance is a sure-fire way to lose money in the long-term.

THESE HAVE BEEN THE “GOOD TIMES”

The All Share Index has grown by more than 25% per year for the last two years and by 17% per year for the last five. In anyone’s books this is a great return for equity investors and represents some of the best growth we have seen for a long time. This performance has created some major pitfalls that will catch unsuspecting investors so you need to exercise caution with your next investment decision.

DANGER: POTHOLES AHEAD

To illustrate these dangers, Resources unit trusts (those that invest in the mining sector) have averaged 4% growth for the year ending September. Over the same period, unit trusts investing in the Industrial sector have averaged 35% - a brilliant return. When investors start reviewing the most recent unit trust performance rankings, funds that have had a major exposure to mining houses will look very sickly compared to those that are invested in Industrial shares.

Investors will therefore be tempted to move out of funds with poor performance into those that have shown recent growth of 30% to 40%. Unfortunately, this is likely to be a bad investment decision. The valuations of the shares in the Industrial sector are way above their long-term fair value. As an example, Naspers and Remgro are more than double their long-term PE’s. This is not sustainable and what goes up eventually comes down again. With shares, the correction is often brutal. So if you decide to invest new money into a fund that has just achieved a return of 35%, you need to be sure that you are not being overinvested in shares that are completely overvalued.

WHAT STRATEGY TO FOLLOW

If you are invested in a fund that has delivered a return of 20%, you might feel hard done by as the average equity unit trust has delivered a return of 22% over the last year. However, you need to understand how your fund is invested. You might be in a well-diversified portfolio with shares that are trading below their long-term value. If that is the case, a return of 20% is brilliant because your potential losses are limited and you might see great growth going forward.

Successful investing is about consistent returns – the more consistent your growth the better. Here is an example, if you had invested R100 into two funds for the last three years:

	Fund 1	Fund 2
Year 1	20%	35%
Year 2	15%	-20%
Year 3	10%	35%
Value of R100 after 3 years	R152	R146

 

Fund 1 has never achieved a return of more than 20% but it has also did not lose money. It is this consistency of returns that enabled Fund 1 to outperform Fund 2. Over the longer term, greater consistency will ensure even more outperformance. This does not mean you should invest all your money in a money market fund which delivers VERY consistent but poor returns. Rather aim for funds that have a long track record of delivering growth that comfortably exceeds inflation.

SA Retail Estate have given the best returns over 10 years

Below is the Asset Class Performance table from Old Mutual Wealth. It makes for interesting reading.

 

 

Over the 5- and 10-year periods, SA Properties have been the top performer, followed by SA Equities.

 

It demonstrates properties and equities as long-term growth assets.

Elias Mnyandu, Editor Business Report, SACCI Convention 2013

Elias Mnyandu, editor business report
SACCI Convention 2013

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Elias Mnyandu, Editor Business Report, SACCI Convention 2013

Elias Mnyandu, editor business report
SACCI Convention 2013

reflect issues facing our country
Africa is on the move, let's get down to business

South Africa in the age of resurgent Africa

president zuma says South Africa is a special place
bordered by two oceans
triumph of human spirits

South Africa is the only country in Africa that has Africa in its name

1 million readers. with social media, the media industry is turned upside down

We are in an age of experimentation and change

we are witnessing history in the making
there are immense opportunities for us to impact
We either embrace change, or become irrelevant and die

The potential of South Africa lies in its people.
heartening to see close the gap in infrastructure on the continent
private sector will play a bigger role in infrastructural development.

Nearly half of the continent faces water scarcity

Technology: increase broadband penetration by 10%
Africa has enormous arable land

Mauritius is the only African country to rank in the top 50 in terms of maximising human resources

Chinese proverb says a man is most tired when standing still

WEF human capital index

Elias Mnyandu, Editor Business Report, SACCI Convention 2013

Elias Mnyandu, editor business report
SACCI Convention 2013

reflect issues facing our country
Africa is on the move, let's get down to business

South Africa in the age of resurgent Africa

president zuma says South Africa is a special place
bordered by two oceans
triumph of human spirits

South Africa is the only country in Africa that has Africa in its name

1 million readers. with social media, the media industry is turned upside down

We are in an age of experimentation and change

we are witnessing history in the making
there are immense opportunities for us to impact
We either embrace change, or become irrelevant and die

The potential of South Africa lies in its people.
heartening to see close the gap in infrastructure on the continent
private sector will play a bigger role in infrastructural development.

Nearly half of the continent faces water scarcity

Technology: increase broadband penetration by 10%
Africa has enormous arable land

Mauritius is the only African country to rank in the top 50 in terms of maximising human resources

Chinese proverb says a man is most tired when standing still

WEF human capital index