2018 Forecast for Hedge FoF.
In our previous newsletter we have mentioned that our Hedge FoF has been
the worst performer of our three Fof’s over the past few years, but our
experience over the past 23 years since we have started to manage FoF’s is that
our Hedge FoF is now the best place to invest, as the underlying funds that we
have picked are some of the best Hedge funds in South Africa. We still believe
that and hope that February will be the last bad month for Kanaan Hedge
FoF.
We initially thought that the growth for February will be more or less
flat, but it is unfortunately a bad -1.46%. The Good news is that the
fund has already grown to 0.94% for the first week of March. We believe
that because of the undervalued situation of our Hedge Funds, that they will
grow better than our other two funds for 2018 until the Rand starts to
depreciate again which we expect only to happen close to the end of the year,
at which stage clients should make use of the strength of the Rand, so as to
purchase USD getting into our offshore funds. UBS on Friday noted that it
has continued upgrading forecasts for emerging markets, with earning forecasts
to grow by 10% in 2018 and 19% in 2019 in dollar terms.
Kanaan Balanced FOF of unit
trusts.
Though we believe that our Hedge FoF will grow the fastest over the next
five to six months as it is much more undervalued than our other funds, our
Balanced FoF is also hugely undervalued with the 8 underlying funds that we
have picked under the top 10 in South Africa. We should see much better growth
than the poor 6.56% we have seen for 2017.
The drop in value of one of the biggest companies in South Africa,
Steinhoff, was more than 90% because of assumed irregularities as well as
the drop in value of one of the biggest listed property companies Resilient,
also because of assumed irregularities, has been quite a shock to growth funds
and caused our funds to drop in value unjustifiably, as our funds had a minimal
exposure to these funds.
We believe that the -5.58% growth of February 2018 was
the last bad month for this year, with a positive growth of already 0.12% for
the first week of March 2018.
We do have appreciation for clients who get frightened and who have been
asking us to switch them to safe havens. In the end of the day we are not
married to any of the underlying funds of our Fund of Funds and we will always
consider another fund, pointed out to us, that might be a better fund over the
short, medium and long term. There are more than 2000 funds in SA to
choose from but even after the bad performance of the funds we have picked, we
still believe they are the best.
Why do we expect a good year:
Fewer expected interest rates hikes in the US this year – meaning less
pressure on emerging markets.
China is forecast to lead the earnings parade in 2018 with 21%, and
Brazil, Russia, India then Korea in a 16% to 21% growth range. Our Balanced FoF have
a 15% exposure to India.
Tax cuts in the USA are fuelling the largest amount of merges in 18
years ($325 Billion).
Advances in US technology is expected to keep inflation at bay.
For ex. apps like GoodRx help consumers save money by finding the best local
price for prescriptions.
The combination of globalization, technology and competition should keep
inflation under control.
Some economists believe that the trade spat in the US will not
degenerate into a trade war and even if that occurs, the fact remains that the
US imports much more than it exports which gives Trump a lot of leverage and it
is the good growth of the USA, namely the biggest economy in the world, that
influences emerging market markets far more than other first world countries.
Moriah Global FoF
Our Moriah Global FoF, is the best bet of our three FoF’s for the medium
and long term because of political uncertainty in South Africa and the
advantage of at least 5% p/a rand depreciation over the medium to long term.
As South Africa is getting more and more socialistic, regulations
especially in the Financial Services Industry is getting more and more
draconian, while making it more difficult for fund managers and FoF managers
like ourselves, to provide good growth like in the past. When we move
from one administrator to another one because of better fees and services it is
good, but when we are forced to move to another administrator, then it is
disruptive and we are more and more limited in terms of what we can buy and do.
In the case of offshore jurisdictions like Guernsey and Mauritius, we
are making use now of the new administrator, International Assurance Ltd Plc
where we are allowed to buy hedge funds of our choice, anywhere in the world,
as well as unit trusts and we are for instance allowed to buy shares like the
Berkshire shares of the famous Warren Buffett. Clients can invest with as
little as 15000 USD, whereas in South Africa the minimum for a client to invest
in a Hedge Fund has been raised to one Million Rand.
Clients who take a liking in one or more of the underlying funds of
Moriah Global can request us to invest all or some of their money via our
Segregated actively managed mandate making use of the same administrator for
the same fees, and clients who feel that the underlying funds of Moriah global
are too volatile can request us to invest some of their money or all of their
money, in lower growth, lower risk funds, via our segregated mandate for
passive/moderate management for 50% of the fees, again making use of the same administrator.
In South Africa, the clients will have to first cash in, whatever they
want to have managed differently and thereafter transfer the cash to another
administrator.
In South Africa clients are not allowed to invest jointly with their
spouses and or their children, which they are allowed offshore. This is a huge
benefit, because if your investments are not invested via a family trust, the
applicable investment will be frozen when the spouse dies and the unwinding of
his or her estate may take in the new South Africa, easily more than two
years. Regulations in South Africa does not allow a South African Trust
to own offshore investments, you will have to setup an offshore trust.
Moriah Global is not suspended anymore and clients can invest and make
withdrawals as usual. We advise clients with cash laying around to invest
in Moriah Global, we expect a two times better return than the 9.13% in USD of
2017, hopefully more than 15% in USD. The return for January 2018 in USD,
nett of all feel was healthy 3.07%!
Friendly Greetings
Andre Delport