Guess what? If (many say when) SA gets cut to junk by the rating agencies, the world will carry on. SA won't be the first and last country to have a junk rating. Of course, market commentators will talk about increased bond yields and market corrections. We know better. We concede we will probably have lots of market volatility. We choose to ignore it. We choose to focus on the data that matters in the very long term. So, smile when you hear people freaking out about ratings. Chuckle when you hear political parties get their knickers in knot because of rating agency comments on political risk. Don't get me wrong, a rating downgrade is bad news. I am just saying there is no need to go and make wholesale changes to your investment portfolio. The world will survive and your diversified investment portfolio will be fine in the long run.
I love indexing. I think it is a great investment strategy for anyone who doesn't want to spend one second thinking about their investments. In my opinion, if you are disciplined and buy an index fund every month of your entire career, you should have a great investment outcome.
I also dislike active investing. I have made these thoughts known before. I think 10x do a great job summing up the futile hunt for alpha here.
So what do I do? I kind of sit in no man's land. I take the low costs and low portfolio turnover aspects of passive that I like. I make a commitment to spend a couple of hours a week managing my portfolio. I buy well-known companies (not too dissimilar to what lives in an index) who can on average grow their dividends ahead of inflation. I don't sell companies. I am not a serial dater. I like to be married to them. I have a clear objective. I am not trying to beat the market but instead trying to build a passive income stream. All of this I go through in detail in Forget the Noise.
I have got a bit side-tracked. The reason for this post was fees and indexing. I was interested to calculate what fees I am paying on my investment. Before, I tell let's look at two Satrix index funds.
Satrix All Share Unit Trust
The Satrix ALSI Index Fund tracks the performance of the FTSE/JSE All Share Index. The index constitutes the 160 largest companies, by market capitalisation, listed on the JSE. The larger the company (by market capitalisation), the larger the weighting of the company’s share in the index. (source: Satrix website)
Management Fee direct to retail investor: 0.513% including VAT
Management Fee via LISP: 0.285% including VAT + LISP fee of 0.50% to 1.00% (Expensive!)
Satrix Balanced High Equity Unit Trust (good proxy for my portfolio)
The Satrix Balanced Index Fund complies with all limitations of Regulation 28 and offers diversified exposure to all the key local and international asset classes, with a smart SA equity core. The fund tracks the proprietary or custom Satrix Balanced Index and invests in a range of underlying smart equity indices: FTSE/JSE Dividend Plus Index (value exposure), FTSE/JSE Equally Weighted Top 40 Index (size exposure) and Satrix Momentum Index (momentum exposure). All asset classes, constituting components of the composite index tracked by the portfolio, are tracker products (except for domestic cash). (source: Satrix website)
Management Fee direct to retail investor: 0.684% including VAT
Management Fee via LISP: 0.399% including VAT + LISP fee of 0.50% to 1.00% (Expensive!)
You may be amazed to know that the total fees I am paying on my portfolio are 0.28% including VAT. The vast majority of these fees are monthly bank charges. I have included all costs other than brokerage (I have done the same for the unit trusts). I don't trade a lot and brokerage adds a relatively immaterial cost and limited to purchases only.
Secondly, as my portfolio grows my costs are fixed. This means that the 0.28% is only going to get lower. I can see a time when I am paying less than 0.10% per annum! In a index unit trust or ETF, fees are tied to AuM so costs are not fixed.
Contrary to popular belief, you can construct your own portfolio far cheaper than any index fund in the South African market. A good place to start is EasyEquities by Purple Group. They charge 64c per R100 of trade and no monthly fees. You won't find a more affordable stockbroker in South Africa.
I am not knocking index investing. It is a great strategy! My point is that you can build a diversified portfolio with an inflation-hedged income stream which costs less than an index fund in South Africa. You just need to be prepared to spend a couple of hours a week on your portfolio. If you don't want to do that, then please index away!
"The historical data support one conclusion with unusual force: To invest with success, you must be a long-term investor"
John Bogle is the founder of Vanguard. He is also seen as the father of passive investing. He has written many books on investing. The Clash of the Cultures is among one of my favourite investment books of all time.
It's Sunday so that means it is dividend update time. Noise levels remain elevated globally. Trump, Zuma, State of Capture, Hard Brexit, Aleppo, Mosul et al are all clogging the airwaves. We must look past the noise and continue on our dividend investing crusade. We are not market timers nor prophets so we won't guess how the world will play out in the next 6 to 12 months. We worry about the next 10 to 30 years. If stock markets exist then, I am sure that our investments will have done just fine. If stock markets don't exist in the future, we will have far greater worries than our investments.
Three companies in the Forget the Noise universe declared results. Life Healthcare (LHC) increased its final dividend by 7% (SENS) while Foschini (TFG) increased its interim dividend by 5% (SENS). Lastly, Lewis (LEW) declared a dividend of R1 per share (down 50%, SENS).
The views on this website are my own and do not convey the views of the organisation I work for.
Nothing on this website constitutes financial advice. All content is mere opinion and is not based on anyone's specific circumstances and/or needs. It is based on factual data and does not contain any recommendations. Use of any information on this website is at your own risk.
I have tried my best to ensure that all data and information is accurate. Errors and Omissions are Excluded (E&OE).
This year keeps getting stranger. Sometimes we need to just step back and relax. The sun will rise tomorrow and companies will continue to pay dividends. It may be useful to listen to author, Seth Godin.
"Until you remove the NOISE, you’re going to miss a lot of SIGNAL"
Good morning. All is well that ends well. Sense prevailed and charges were dropped. There are less distractions now. Of course, we can't count our chickens just yet. It will be an interesting next 6 to 12 months in South Africa.
There was no news that we actually care about this week (i.e. dividend news). This means all we need to do is have a look at our table and refresh our memories as to what is happening in the dividend world of 46 companies.