Dear client
1. We have obtained our fund management licence
and setup our Balanced Wrap fund during 1995, which we changed to Kanaan
Balanced FoF during 2005, because a FoF is a registered unit trust fund, with
newspaper exposure, like all other unit trust funds, but more important, one
can switch the underlying funds of a fund of fund within a few days, whereas in
the case of wrap funds like Kanaan Active Wrap funds, which we setup during
2018, the notice period is between a week and 2 weeks, but there are much less
regulations in the case of Wrap funds. In the case of our Kanaan Active wrap
funds we are allowed to have a 100% exposure to locally registered offshore
funds, whereas in the case of your investment in our Kanaan Balanced FoF we are
limited to a maximum of 30%, which regulations had decreased a few months ago
to only 11%!
2. The other problem with FoF’s in South Africa is that because
of the cost structure you cannot manage a FoF under R50 million and lately
there is more and more a need to rather have various smaller wrap funds (which
may be as small as R10 million per fund) so as to meet the various risk
profiles of our clients. Dries Van Tonder from our offices has found that he
may be able to do the necessary programming to link our client administration
system with BCI, hopefully within the next few weeks or months, after which we
will be able to overcome the obstacle with the slow switching process in the
case of wrap funds, after which we will be able to switch as fast as in the
case of Fund of funds and even faster. Once that programming has been done we
will start the process to move the investments of our clients in Kanaan BCI
Balanced FoF (see your investments in the Balanced FoF below) in bulk to our
much more effective and cost efficient Active Wrap funds.
3. Below you will see how much better our Wrap
funds did compared to our two South African Fund of funds.
3.1. Kanaan Active 1 since 1 January 2019 has
grown with 1.08% for the first week of August and 13.01% YTD!
3.2. Kanaan Active 2 since 1 January 2019 has grown with
0.58% for the first week of August and 10.04% YTD!
3.3. Kanaan Active 3 since 1 January 2019 has grown with
0.88% for the first week of August and 12.8% YTD!
3.4. Kanaan Active 4 since 1 January 2019 has grown with
0.77 for the first week of August and 11.3% YTD!
3.5. Kanaan Passive 1 since 1 January 2019 has grown with
-0.1% for the first week of August and 5.78% YTD, this fund intends to compete
with a savings account or the money market and as you can see if it carries on
like this it may end the 12 month period with more than 10% almost twice as
good as a savings account.
3.6. Kanaan Active 5 since 1 January 2019 has grown with
-0.1% for the first week of August and 26.13% YTD in USD! Kanaan Active 5
differs from the other Active Wrap funds, as the fund is not limited to the
handful locally registered offshore funds, but has access to any offshore fund
worldwide via our administrator in Mauritius, International Assurance Ltd,
because of which the growth is almost twice as good as the other Active Wrap
funds, even better than our offshore Moriah Global FoF, but much more volatile
and not advisable for pensioners.
4. Below you will see that our two South African Fund of
Funds have not grown as well as our Wrap funds above:
4.1 Above you will notice that under the fund name column, your
investment in Kanaan Balanced FoF has grown -0.15% for August and YTD 5.78%,
which if it carries on like this could go to +-10% for the 12 month period,
which is almost twice as good as a savings account or a money market account,
but a far cry from the above Kanaan Active Wrap funds, where we have more
freedom to choose.
4.2 Above you will notice that under the fund name column, your
investment in Kanaan Hedge FoF has grown -0.43% for August and YTD 4.23%, which
if it carries on like this we will go to +-8% for the 12 month period, which
will not be much better than a money market account and a far cry from the
above Kanaan Active Wrap funds where we have more freedom to choose,
specifically to invest in locally registered offshore funds.
To answer the question whether one should take profit now:
5. One should ask the question whether one should take
profit now, as
the recent depreciation of the ZAR caused your unit trust investments to grow
rapidly in ZAR, which has caused your investment in our Kanaan Fund of Funds,
as well as Wrap funds to go well. The locally registered offshore funds, which
has grown as follows - In the case of Sanlam India, just for the first week of
August 1.73% (4.89% YTD), Mi Plan Global 1.52% (16.37% YTD) and Old Mutual
Global 0.99% (15.22% YTD). See below their performances since January.

6. Offshore funds are performing far better than the locally
registered offshore funds:
Below you will notice comparable unit trust
growth funds namely (underlying funds of our Moriah Global FoF, managed via our
administrator, International Assurance Ltd, in Mauritius) BnP Paribas and JP
Morgan that have done very well for the year, with BNP Paribas 18.05% YTD and
JP Morgan 37.65% and that in USD! However you will notice that in USD BNP
Paribas and JP Morgan did very bad for the first week of August, which is an
indication of the American market that is busy taking a breather because of the
fact that it is relatively expensive and also because of the continued trade
war. That means that the ZAR growth that you have seen in the case of the
offshore, locally registered funds above, namely Old Mutual Global and others
have grown for the first week of August only because of Rand depreciation, not
because of the underlying shares. We have therefore already decided to sell BnP
Paribas and JP Morgan and to keep it in USD Income funds, namely Old Mutual USD
Income Fund that is giving an above average return of +-3% per annum and in
South Africa we have already given notice to sell Old Mutual Global, Mi-Plan
and Sanlam India and are switching it to locally registered Standard Bank USD
Income fund, as the Old Mutual USD income fund is not locally registered.
7. We have locked-in the profits of the past 6 months:
We have therefore already given notice to
switch out of these excellent locally registered offshore growth funds in
the case of your investment above so as to take profit, not because we believe
that the Rand will make a comeback (the ZAR is too difficult to time and we
therefore are staying in USD income funds). We want to get out of the offshore
growth markets for the time being, because of the trade war and uncertainty of
Brexit, but we want to stay in USD as we believe that the Rand may depreciate
to 20 ZAR/USD in the next 12 months, even though there are signs that the USA
wants to depreciate the USD. We believe the ZAR will depreciate even more.
8. In South Africa, in the case of our Kanaan Hedge
FoF, we are not allowed to switch to offshore hedge funds, but there is a way
to switch into these hedge funds, hopefully within the next three months, but
in the meantime we have already given notice to switch to Standard Bank
USD income funds, so as to protect the fund against expected bad Rand
depreciation for the next 12 months.
9. In the case of Moriah Global FoF we have left more than
70% of the fund in these excellent offshore hedge funds, as the managers of
these funds have proven themselves over the long term to know what to do during
market corrections and global market corrections, since 1998. See below, for
instance, our Hadiar Jupiter Hedge fund in USD compared with the performance of
the FTSE JSE ALL Share Index, also calculated in USD.

Above you will notice that
when the JSE crashed with -2.13% during the IT Bubble crash of 2000, Hadiar
grew 45.98% and the JSE
crashed with -25% during the Credit Crunch Crash of 2008, Hadiar went down only
with -6.03%, because of which Hadiar’s CAR (Cummalative Average Rate of Return
Since Inception) is 18.24% per annum, compared to the CAR of 9.67% of the
JSE (all in
USD).
It is unbelievable how the three
underlying hedge funds of Moriah Global FoF are performing to which we have
more than 70% exposure. For July, KG Investment fund has grown 1.88% and is now
22.88% YTD, Global Sigma 0.93% and is 5.36% YTD and we do not yet have the
figures for Haidiar, but YTD up to the end of June it is 32.56% in USD and
therefore immune to a depreciating Rand!
We will keep you posted.
Friendly greetings
Andre