SOMETIMES it is important to get back to basics and to remember how fragile material prosperity can be.
The Momentum Unisa Household Financial Wellness survey obviously ties with the theme of Momentum’s marketing. The life and investments juggernaut was there to create financial wellness, we are told. But this survey, conducted by Unisa’s Bureau of Market Research, is very useful as it does not divide the population by income or even by living standards measures but into four categories: financially well, exposed, unstable and distressed.
Unisa’s Prof Carel van Aardt tells me that the categories cut across factors such as income and the urban-rural divide. An urban, white-collar worker on, say, R750,000 a year, could be in the distressed category if he cannot service his debt and is going through a debt spiral as he gets out a new credit card to pay back other debts. Equally, a rural woman on R5,000 a month who is good at budgeting and manages to save steadily could end up in the financially well category.
A household that earns a high income has at least one member with higher education, occupies well-respected jobs, lives in a good environment and contributes to retirement funds would normally be considered financially well. But the research shows many people with the required resources and capabilities still cannot control their finances. They are powerless over budgets and their lives have become unmanageable.
Apparently, being able to balance your metaphorical cheque book is called social capital. Unisa uses the term "negative entropy" when households do not have the control over their budgets that might be expected. But there is also positive entropy, as in the example of the astute rural woman: cases in which households without resources or capabilities put the spendthrift wealthy to shame, performing a lot better and rising above their situation. These people do not have to be entrepreneurs, although they would have a selfreliant spirit in common.
In 2015, the number of financially well households fell from 28% to 23%. The financially exposed proportion increased from 38% to 42%. This category can pay their day-to-day bills but are undercovered by insurance policies that could help them in the event of death, accidents, theft or fire. About a 10th of the households in this category earn more than R400,000 a year.
Financially unstable households are even closer to distress, and wrong decisions as well as adverse events can push them down, but they still have scope to rise into the exposed category, which Van Aardt tells me is at least "not unwell". The financially unstable category increased to 32% from 29%, while the financially distressed rose from 2% to 4%. A few households in this sector are affluent families in debt review, but the majority are in dire poverty, and there is no doubt that, mainly thanks to social grants, this kind of dire poverty has been reduced significantly. Not that we can be complacent; SA remains quite dysfunctional, with nearly a third of households financially unstable.
A few suggestions are made that point towards the services of a large insurance group. The first suggestion is to do more financial planning. Anybody at the presentation who had not worked out where to find this service was treated to a short presentation on financial wellbeing from Momentum’s veteran marketing guru, Danie van den Bergh. I must make an apology to Adrian Gore of Discovery for accusing him of using complex slides. Danie’s slide on the Momentum Multiply rewards programme was busier than a Hieronymus Bosch painting of hell.
The survey says 68% of households do not have a financial plan. I thought it would be higher than that. Financial advisers — and this definitely includes Momentum agents and brokers — are not really interested in talking to anyone with less than R5m to invest. Okay, let’s be generous and concede that the R5m includes assets in the retirement fund. Even so, advisers are only prepared to deal with a small minority of households.
They say a bank will give you a loan only if you can prove you don’t need one. Similarly, financial advisers will help you only if you can prove you don’t need their help to get out of financial trouble. I have never met an adviser who is prepared to help households move from the financially unstable to the financially exposed category. Momentum might want to consider training a new group of advisers who can do that.
...
FOR some time, Nedbank’s Nedgroup Investments unit has been one of the unit trust managers I admire most. But it has kept its Core range under a bushel. It includes two local passive — or as it says rules-based — funds and two international tracker funds. Core has R8.9bn under management, which isn’t much in a R2-trillion industry, but it has overshadowed more noisy players. In the multiasset (balanced) space, it has attracted R1.54bn versus R65m for Sygnia in spite of CE Magda Wierzycka’s marketing flair. Then she doesn’t possess a ubiquitous brand with a cash machine in every garage, at least not yet.
You might expect rules-based, or index, funds to be close to the average, but, in fact, Nedgroup Global Diversified has come seventh out 56 high-equity balanced funds over its seven-year history. The low-equity Core Guarded fund is sixth out of 66 funds over its six-year, seven-month history. These are the only two balanced funds in the list of top 10 index tracker funds by sales in the first six months of the year.
The best seller is still the Satrix Swix Top 40 fund, with R4bn of net sales. Satrix is the only strong brand in index funds, although eventually I expect Nedgroup Core and Grindrod’s Core Shares to be mentioned in the same breath. Satrix has the benefit of some push from the Sanlam retail channels, but there are cheaper index funds on the market, so it can’t afford to be complacent.
Internationally, I see Satrix World Equity has overtaken its counterpart from market pioneer db X-trackers in sales in the first half of the year. Nedgroup’s Core Global feeder fund has about 50% lower net sales than Satrix and db X-trackers.
Jannie Leach, head of Nedgroup’s Core division, says passive funds still make up just 3% of South African unit trust assets, but continue to grow, with assets up 21% in 2015. In the US, index funds account for 26% of mutual fund (unit trust) assets. I recently wrote that I am not convinced that an index strategy is suitable for balanced funds, but the track record of Nedgroup’s funds is proving me wrong.
I hear that 10% of the flows into multi-asset funds is now going into index trackers. That’s still well below the 60% that flows into trackers overseas.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.