High Yielding Investment from Fedgroup

Dear All

A brief information bulletin about Fedgroup’s Participation Bonds for those who seek a good yield to consider carefully.

FedGroup, the largest privately owned financial services provider in South Africa, have recently notified me that their new Participation Bond tranche is available.

There are two options to choose from. These investments fall within the ambit of the Collective Investment Schemes Act.

Both options allow for a monthly income from the interest earned by the investment capital or one can chose to reinvest the interest earned and take advantage of the power of compounding interest by enjoying a larger yield from your investment.

Fixed Option
Provides capital preservation with certainty of yield regardless of market fluctuations within a 5 year period.
The 5 year effective rate for this option is 10,55%.

Investment Option
Vehicle to invest where one has access to the initial capital invested in emergencies. Here the interest earned fluctuates in line with the market. The rate as at the 1st of November is 6.75% per annum.



Feature Fixed Option Investment Option
Term Initial Capital to remain invested for 5 years Initial capital can be withdrawn (with penalty) within 5 years
Interest Can be paid out monthly or reinvested Can be paid out monthly or reinvested
Rate Fixed at 8.5% nominal rate, 10.55% for 5 year 6.75% nominal rate that fluctuates relative to market rate


There is a once-off upfront fee paid by Fedbond to the advisor of the equivalent of 2% of the capital amount invested. This fee is not taken off the capital sum invested.

There no ongoing fees and there are also no platform fees involved.

The minimum investment size is R5,000-00.

The interest income is taxed at marginal rates after the annual exemption has been taken into consideration.

A few more details about Fedgroup:

The Property portfolio encompasses commercial, industrial and retail properties of varying size and their value ranges between R30m and R50m.

They investigate the sustainability of the business within the property to ensure they are able to sustain the bond.

They utilise FSB approved property valuators that evaluate the properties in additional to their own expertise from their property division.

Their business operations are regulated by the Consumer Protection Act and is audited annually.

They do not loan more than 75% of the value of the property.

If you have any comments or questions, please contact me so that we can perform a full financial needs analysis in order to ascertain the suitability of such an instrument to your financial circumstances.

Kind regards

ALSI likely to produce negative returns for a while

Buying high and then holding those stocks is not a solid strategy.

This is because the entry price and the exit or sale price are the two points which determine whether you make a profit or a loss or break even and how large the profit or loss will be.

The All Share or ALSI equity index is very high at the moment, meaning that many shares that make up the index are fully priced relatively to their historic prices. The important thing to note is also that their price earnings or p/e ratios would be even higher if their earnings were not so high. So what's so bad about a strong current earnings or revenue stream? It can go down!

So, if we buy shares in most of the firms making up the ALSI now, the price will be relatively high. This means that if we wish to make a good return on our investment, the price obtained at the time of sale will need to be substantially higher and this is extremely unlikely in most cases, even over the medium to long term.

What to do?

Invest in investments and portfolios which contain under-valued shares as well as other assets which are not currently enjoying such popularity and you are far more likely to achieve a good return on your investment capital.

Cautiously managed portfolios investing in under-valued shares are one option, especially those that use their own proprietory research and which are able to invest according to their own philosophies and are not beanchmark or index huggers. ETF investors beware, now is the time to consider taking profits and to diversify in mixed mandate funds.

The expected equity market correction has begun

We have at last entered the anticipated stock market correction in recent days.

This isn't a reason to get out of the markets, but rather an opportunity to take stock of one's objectives in order to be secure in the knowledge that you are invested for a specific reason.

If you have medium and long term goals which require further growth in your capital, then you are invested in the stock market for good reason.

If you have short term goals requiring payment soon, then the capital you have allocated to that goal needs to be invested in less volatile assets right now even if you have not quite achieved the growth level that you had planned to. You can then take capital from your cash fund to make up the difference required for that short term goal.

It is also a sound idea to reassess your whole portfolio now in order to determine whether rebalancing is required after the excellent returns achieved in the equity market since early 2009. Rebalancing is required when one's asset mix has become skewed towards equities beyond the level which is required to achieve your financial goals and it may only be necessary in specific portions of your overall portfolio.

It is always a challenge to accept that a bull run is nearing its end. But lets just be grateful for the excellent growth achieved over the last 5 years and lets use this opportunity to revisit our goals and our asset allocation spreads.

The fallout from African bank's collapse - side pockets in some collective investment schemes

One of the consequences of the collapse of ABIL is that certain fund managers who had exposure to African Bank in the form of either ABIL shares or ABIL debt, have decided to draw a distinction between those assets and the other assets in their unit trust funds which are affected by ABIL. The net effect of this is that so called side pockets have been created within affected unit trust funds to house these illiquid Abil instruments.

These side pockets do not mean that investors' market values have dropped, but rather that the interests of investors are being protected. This is being achieved by keeping "infected" ABIL assets away from those assets within a unit trust fund which are not at risk.

Clients will therefore be issued with two separate valuations, one for the side pocketed ABIL assets and one for the other assets for the foreseeable future until such time as the ABIL debacle has been satisfactorily resolved between the Reserve Bank and those commercial banks which the SARB have appointed to assist with the takeover of ABIL.

Investors will continue to transact as normal in the affected funds, however, no transactions will be allowed in respect of the side pocketed or retention fund assets until liquidity in Abil assets returns to the market and the relevant management company realises (sells) these assets.

Are South African Bonds due for a hit?

Warning signs are emerging that South African bonds are vulnerable to a sell-off should bond market liquidity remain at its recent low levels.

Average monthly turnover for South African bonds slid 25 % in the first half to R452.8bn Rand, while Emerging Market currencies eperienced a high degree of volatility relative to hard currencies. This could indicate that traders are becoming skittish and therefore becoming more aware of the short term risks of holding exposure to Emerging Market currencies.

Falling liquidity obviously raises the risk that it will be more difficult to sell the bonds in the event of any deterioration in sentiment. Rising U.S. interest rates or a slowdown in China, South Africa’s biggest trading partner, could lead to investors coming out of their rather entrenched state of complacency. Emerging or Developing Market government debt dropped in recent weeks as sanctions were imposed on Russia for their involvement in the Ukraine crisis and also after Argentina missed a debt payment.

Also worrying is that fact that Rand denominated SA government bonds have been underperforming their Emerging Market peers this year and foreign investors were net sellers of our government debt for 10 straight days from the 21st to the July 31. This means that net purchases of our bonds by foreigners this year are down to R11.3bn Rand, compared with R26bn Rand in the comparable period last year.

Where to for the stockmarkets in the short term?

It seems as though we are starting to reach levels on most major stockmarkets which are stretched.



Long Term Investors such as Warren Buffett are starting to put out comments that seem to be a gentle warning to those who feel that many major international equity markets are going to climb for the foreseeable future.



On the one hand these comments may be designed to cover him should markets tumble unexpectedly soon and on the other hand he might be seriously concerned.



It has been a good five and a half year bull run since equity markets bottomed out in February 2009 and this makes it a relatively long and almost uninterrupted upward trend.



Then again, we did come off a very low base back in early 2009 and interest rates are still set extremely low, so possibly things will be different this time?!



It may be fair to say that the high returns are a thing of the past and that the next few years could lead to more conservative returns in most equity markets, however, there will always be exceptions in each sector, region and country and it is these that investors will try to find.

Equities in South Africa are expensive. How do I decide whether to invest in them now or not?

According to most asset managers in South Africa, equities are currently trading at very high levels relative to historic levels.

This may seem to indicate that investors should be wary of investing in this asset class, or does it? How do I know what I should do to save successfully?

With increasing life expectancy as well as increasing costs in many spheres of life in South Africa, we need to remember that not only must we invest carefully in order to protect our capital from permanent loss of value, but we should also invest it wisely in assets which will grow its value over time in order to allow it to retain its value after the effects of increasing inflation.

The two main investment challenges which therefore face investors in South Africa are different, but equally important to deal with.

What simple advice can we keep in mind to ensure that we invest our money appropriately?

Approach a qualified Financial Advisor who will be able to spend time discussing what your desires, objectives and your purpose in life are and will then go about analysing your overall financial situation, including your current lifestyle and financial situation versus where you'd like to be in the medium and longer term. This will allow you to benefit from their knowledge and their objective perspective in determining a suitable portfolio of investments for each need.

Some of your money may need to be used on a home purchase in only say three years time, while you may be able to save for a lot longer for your child's education. Together with your advisor, an appropriate mix of equities as well as other possibly less volatile assets could form part of a well-structured plan for your life and those of your loved ones.

Remember, no one asset class, or type of investment, fits all your needs. Everyone of us requires various different investments with different exposure levels to cash, government and corporate bonds as well as equities to achieve each objective's specific goals.

If you don't have an idea of how to go about achieving this, contact a registered Financial Advisor.