Mafiabuzz
DIY Portfolio Management Programme Support Club
Staff: Charles Hattingh, Colette Spear (daughter) and Jade Spear (granddaughter)
Telephone: 011 476-3626 Web: mafiabuzz.co.za Email: jadely@pcfinance.co.za OR cphat@pcfinance.co.za
Buzz 104
Provident Fund Skimming
One of our Hedgehog members worked for a bank for many years. His employment contract required him to contribute to a defined contribution pension fund. He left the bank a few years ago and was paid out an amount from the fund. To his surprise, he recently received a letter informing him that he was entitled to a share of the fund’s “risk and expense reserve account”. He had no idea that the fund was, to use his words, “skimming money from my contributions over the years”. His conclusion was that you should take control over the management of your own wealth and not hand it over to a third party to manage for you. In this case he had no choice as he was forced into this situation by his employer.
Beware the Con
The Citizen reports that Finbond is offering 15.5% p.a. return on its fixed deposits. They calculate this 15.5% as follows:
|Initial investment |R1 000 000 |
|Paid out after 5 years |R1 772 272 |
|Total interest |R 772 272 |
|Dividend by 5 |R 154 454 |
|Effective annual return |15.5% |
The Citizen quoted a retired actuary who said that this calculation is “purposefully designed to mislead investors”.
Having worked though our Programme you will know that the correct way to calculate the return is:
(R1 772 272/R1 000 000) ^ (1/5) – 1 = 12.1%.
Alternatively you can use the calculator in Sundries, Applications.
Do they really think they can get away with this con in this day and age?
Grass is Greener – From the Economist
Rarely in stock market history have so many investors made so much money from so few shares going up for so long. Some 37% of the rise in the value of all firms in the S&P 500 index since 2013 is explained by six of its members: Alphabet, Amazon, Apple, Facebook, Microsoft and Netflix. About 28% of the rise in Chinese equities over the same period is owing to two firms, namely Alibaba and Tencent.
Investors have bought into a tale of effortless disruption by elite firms led by the world’s brainiest people. Now the trend has reversed in startling fashion. The median drop in value of those eight firms has been 21% since the start of September, double the decline in global stock markets. Some $900bn has been vaporised, more than the eight firms were worth a decade ago, and double the value of Indonesia’s stock market. The pain has spread beyond the giants. The share price of Xiaomi, the largest tech listing of 2018, done in Hong Kong, has fallen by half from its peak (in dollar terms). Africa’s most valuable firm, Naspers, has sunk by 38% from its high, thanks to its large stake in Tencent. Scottish Mortgage, a FTSE 100 investment trust that has bet big on tech, has tumbled by 18%.
An update: The Dow Jones experienced its worst fall on Christmas-eve since the great depression in the 1930’s. Then it soared when the markets opened after Christmas. AH Trump prides himself on being a disruptor and destroying the wealth of investors. Hopefully the Democrats can contain him in 2019 by locking him up in his little play-pen.
Another reason to do it yourself
The Financial Services Conduct Authority has fined Stanlib R500k for charging performance fees on its various funds that were not stipulated in the deeds of the portfolios. Stanlib must repay all performance fees in contravention for the period 1 January 2011 to 30 June 2018.
If it doesn’t make sense it must be wrong
For the past eleven months I have been scratching my head over the results produced by our Hedgehog report on the return attributable to idle cash. The results made sense if there were no movements of cash flows to or from the portfolio during the year but went haywire if there were major movements during the year. I came to the conclusion that I was losing it. And then, when considering improvements to the report for 2019 I found the problem: It was a simple formula error in the IRR table! Jade fixed all the Hedgehog portfolios for the month of December. Lesson: if it does not make sense go and check the underlying formulas twit!
Dividend Yield Calculation
I received a brilliant question from one of our Hedgehog members asking how the dividend yield is calculated for shares in the newspapers. To my knowledge, only the Citizen does the calculation before deducting withholding tax. To calculate it after WT is clearly wrong for two reasons:
1. IFRS does not permit tax to be netted against income
2. Not all shareholders pay withholding tax, e.g. if the shares are held in a company
The following example illustrates the calculation for Capitec (year end 28 February 2018) at 30 November 2018 when the market price was 110000 cents:
|Final |Cents |Interim |Cents |
|2017.04 |800 |2017.10 |525 |
|2018.04 |945 |2018.10 |630 |
Answer: (630 + 945) / 110000 = 1.43%
Thanks for the query Sunshine.
Kind regards,
Charles Hattingh,
December 2018
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