Notes from my inbox

ELECTIONS, POLITICS, HOPE AND CHALLENGES

Even before the US presidential elections in November, the winds of political change have already swept across large swathes of the democratic world. New political paradigms are in the ascendancy in India, France, Mexico, the UK, and South Africa. While the recent formation of the first centrist coalition government of our democratic era brings the hope of better economic outcomes, any optimism should be tempered by the many dangers lurking in the choppy waters ahead, as Marie Antelme reports here.

The daunting challenge of figuring out how to cure the problems caused by years of underinvestment in and mismanagement of the critical infrastructure underpinning our economy and society remains one of the key obstacles facing the seventh democratically elected government. Will the centre hold long enough for ordinary South Africans to notice an improvement in their daily lives? At least we’ve had four months without loadshedding.

This quarter, we focus on infrastructure from two novel angles. Humaira Surve from our developed markets team explores how Transnet – now under new management – can use the principles that transformed private sector rail in the US to improve operational performance. We also include an extract from our latest Stewardship Activities Report, focusing on the framework we use to evaluate water risks affecting South Africa’s listed companies. While water has, to date, received less coverage than the priority areas of energy, logistics and crime, the problems here are just as significant. Around 37% of all municipal water is lost before it reaches consumers’ taps. Many of our clients have already experienced the effect of watershedding, as is evidenced by the tall stacks of 5l water bottles in our supermarkets.

Much like Santiago, Hemingway’s long-suffering fisherman, we hope that the so-far fractious coalition can remain pragmatically focused on what can be done with what we have, rather than dwelling on what we never had (or have lost) in the past. The wellbeing of all South Africans depends on it.

MATTERS RETIREMENT

The imminent introduction of the new two-pot retirement system currently dominates the personal finance headlines.

We remain on track to implement the required changes to allow early withdrawal requests under the new regime by the effective date in September but continue to caution that this option should only be exercised at times of real and urgent need. We wrote about the high cost of early withdrawals earlier this year and will provide more practical information in due course.

This quarter, we focus on the main purpose of saving for retirement: eventually purchasing an income for the rest of your life. This decision poses a trade-off between managing different risks. We argue that managing inflation risk is the biggest issue facing pensioners currently and show how the various options available are likely to perform given different inflationary scenarios.

ENTERING THE ETF MARKET

Coronation recently received approval from the Financial Sector Conduct Authority to list our first exchange traded funds (ETFs) on the JSE. This is an exciting development as it allows us to make our well-established and proven investment strategies available to a broader market through a new distribution channel. This development was made possible by a recent regulatory change that now allows ETFs to be actively managed. Our initial fund launch will focus on making our existing international strategies available for on-market investing. These strategies cover the full range of investor needs, including managed US dollar income, our award-winning diversified global multi-asset portfolios, and our market-leading global emerging markets equity strategy. The new funds will be complimentary to our existing rand and foreign currency offshore unit trust options, which will all continue to be available for investment through the current off-market channels. Over time, we expect to expand the range of Coronation-managed strategies available as ETFs, including replicating some of our successful domestic unit trust funds. More detail will be made available via coronation.com once listing dates are confirmed.

I hope you enjoy the read.

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