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The 5 o' Clock Shadow with Schalk Louw · Strictly Business

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  The JSC has closed its doors for another day, so it's time for the five o'clock
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  shadow.
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  And as always, on Wednesday, I speak to Skullclo, Portfolio Manager at PSG Wealth
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  Old Oak in
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  Cape Town.
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  I want to start with the JSC today for a change, Skullc,
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  not going on some tangent about my geopolitical views.
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  That will come later.
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  JSC today, I noticed 91's results came out and I noticed the market didn't
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  particularly like it.
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  Them rather.
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  This is a company we both know well.
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  And like.
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  I mean, let's make no mistake.
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  I've got a massive respect for Fuen.
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  I think he's one of the best leaders, CEOs,
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  not just in South Africa, but in the world.
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  I really, I mean, this is a...
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  This is a great company, and as the name implies, 1991 or 91.
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  And, yeah, it's been a company in existence this year for 35 years, and it's
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  been run really, really well.
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  Yes, it got really hammered today.
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  At the moment, a share retraced by 5% or more,
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  and at one stage it was down quite a bit more.
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  Then you ask yourself the questions, you know, is why?
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  And.
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  I looked at the results.
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  I think, you know, for somebody that's reading through the results would
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  immediately say, but it doesn't look too bad.
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  I mean, they mention all the right buzzwords.
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  I mean, how the assets under management have improved.
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  We're talking about 172 billion.
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  I mean, that's up to 172 billion.
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  So that is up from… Which currency?
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  Let's make it clear.
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  Which currency are you talking about?
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  Pounds.
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  Pounds.
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  So, yes, but then when you look at it,
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  because it's up from £131 billion.
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  Remember the Sunlum transaction that added £2.8 billion to them.
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  And they talk about the market and
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  FX impact was close to £20 billion.
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  So the moment you look at that, then suddenly it...
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  The net flows didn't look too attractive.
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  And I think that's what the markets say, well, why?
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  So I call this results, you know, looking forward and looking into the rear view
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  mirror.
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  You know, looking in the rear view mirror, one can see, yes, asset management's up,
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  but it's up really on the back of acquisitions and some market movement.
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  And foreign exchange, so it's not money coming in.
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  There we go.
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  It's not really money coming in.
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  Now looking ahead.
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  They mentioned in this results, and that was a bit worried.
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  When you look at an asset management company, in this case, like 91,
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  the most important product you're selling is the ability to outperform your
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  benchmarks.
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  This is what you sell.
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  We know that active management is constantly under threat from passive
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  management, as we speak.
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  But when you look at the, you know,
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  performances they mention it the the the the one year outperformance softened
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  from
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  68 last year to 56 now now that's a that's to me looking ahead
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  is why the market's saying well now we worry it because yes we didn't see any
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  solid flows this year but
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  for any of their big clients attracting
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  new money for the next year is going to be tough if you're selling something that's
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  only barely been able to manage to outperform its benchmarks.
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  And also, you know, we know it's been tough.
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  I mean, there's going to be some, you know, worries on the current SSN and
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  management.
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  The presentation scope will be terribly important because it's very, very easy to
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  explain this.
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  It's because the benchmarks are the S&P and the NASDAQ and the FTSE and the JSC,
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  et cetera.
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  Very, very narrow markets.
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  In other words, dominated by not a handful, but a couple of handfuls of
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  stocks.
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  And that's where the passive managers during this time, this is where they make
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  hay, these passive managers,
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  because the sun is shining for them, because the indexes are going up.
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  It doesn't mean, doesn't tell the full picture.
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  So a very diverse active manager like 91 doesn't do quite so well in these times.
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  That's my assessment.
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  I totally agree with you.
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  So it was sort of the perfect storm.
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  So listeners out there, Lindsay, you've actually hit the nail on its head.
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  You couldn't do it better.
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  The problem is just I would say more than 90% of the world is not as knowledgeable
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  as you.
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  And they look at a fact sheet and they look, they skip straight to two things.
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  They go to the performance and they go to the fees.
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  And, you know, when they struggle, they don't ask the questions.
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  and listeners out there Go and pull a graph.
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  It's very easy.
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  You can actually look.
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  There's some ETFs on them.
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  Just go pull a fact sheet from one of these ETFs and put in
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  MSCI World Momentum ETF, MSCI
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  World Quality ETF.
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  Compare the two's performances and there you'll see your answer.
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  91 is a quality manager.
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  They invest in very… quality type of model where when you look at the likes of the
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  allen gray they're
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  more value orientated when you've got a market
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  like we've seen over the past few months which just gone one direction and that's
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  momentum it's momentum type of stocks
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  it's the tech stocks it's the semiconductors that
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  is not going to be an environment that's going to be conducive or positive for for
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  the last 90 months yes i agree i would
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  set it out i think they've got one of the most quality teams in the world But, yeah,
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  I think the market is a tough one currently.
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  The last thing I'll say about 91 is that I'm still speaking to the same people I
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  was speaking to 10 years ago,
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  15 years ago in some cases.
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  They're still there at the company managing money on behalf of their clients.
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  So it's not one of those high churn, high turnover businesses when it comes to
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  staff.
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  And they incentivize their staff with equity in the company.
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  A good chunk of the company is owned by the people.
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  that work there.
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  They keep their really good quality people.
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  Right, enough of 91.
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  Share price down.
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  We'll come to that in a moment.
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  This is my geopolitical rant.
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  This war's going nowhere, Skalk.
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  This war is going nowhere.
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  There's no such thing as a ceasefire.
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  Netanyahu is not listening to Trump.
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  Trump is not listening to Netanyahu.
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  Trump has got bored with Iran.
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  There's no negotiations going on.
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  The Strait of Hormuz is still essentially closed.
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  A few tankers are slipping through because...
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  They're important ones like the ones going to China, etc.
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  But on the other hand, the key here is Lebanon, I think.
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  And Netanyahu and his right-wing cabinet who are prodding him are not going to
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  listen to anyone.
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  There was supposed to be a ceasefire starting 36 hours ago.
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  It's being broken every hour.
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  And the same with the ceasefire between Iran and the U.S.
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  and Israel.
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  So this war's not stopping.
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  No one's listening to each other.
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  And there's vested interests there that mean that we are going to be enduring high
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  oil prices for a long time.
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  And I'm very, very fearful that eventually this is going to come out in the wash.
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  Yeah, I had a great saying this week.
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  The war's now been named, and I think this is a beautiful name, Infinity Wars.
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  It's the Infinity War.
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  Because every...
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  Second day, we've got some peace deal negotiated.
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  It is so close.
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  I can feel it.
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  And then the next day, there's some drone or some ship that's been sunk.
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  This is the infinity war.
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  This is not going to end anytime soon.
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  Not if you look at the trend over the past few months.
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  And I think for the listeners out there that want to try and just protect
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  themselves, I would say
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  And I had this conversation today, and this is an interesting one.
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  I know we time constrained, so I'm just going to do this very, very quickly.
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  I ran through, you know, we've often had this conversation, but
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  I looked at performances historically for the market
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  when the prime rate went up and when the prime rate went down.
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  And when you look at it over the past few years, Let me quickly open this because
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  this is actually,
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  just hold me for a second.
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  I'm waiting for you.
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  Yeah, just hold me.
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  By the way, while you're doing that, I can tell you two things, because I have to get
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  my Trump rant in as well.
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  Very, very briefly, Trump said he has spoken to the supreme leader of Iran.
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  No, he hasn't.
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  He says he has spoken to the leader of Hezbollah.
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  No, he hasn't either.
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  He doesn't know why he feels as though he must say these things because they are
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  pure fantasy.
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  or as real people say, complete lies.
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  Sorry, carry on, Skull.
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  So what I've done is, and we've had this conversation for the listeners that's got
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  the first time,
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  I've been running a model where I look at what the JSE has done in a rising interest
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  rate environment
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  and what it's done in a declining interest rate environment compared to money market,
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  for example.
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  And it was interesting with the interest rates that actually kicked up for the
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  first time last week.
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  It's also exactly, it's the exact same playbook as the previous times.
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  They always say this will be just the interim thing.
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  The trend is downward.
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  Do not worry.
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  It's going to be a month or two, then we'll see the interest rates being lowered
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  again.
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  Well, when you look at over the past 35 years, and why I've used the 35 years,
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  is that was the final stretch, or as we went into a democracy in 1994.
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  That final, let's call it cycle.
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  was 35 years ago.
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  That's where it started.
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  So 35 years ago, over the past 35, an average declining cycle,
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  this is where the interest rate dropped for the first time and would go up for the
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  first time again, that period between them,
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  that average was 32 months.
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  An average hiking cycle, 32 months.
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  So by no means should anybody listening to this podcast think that this might just be
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  a quick one because historically
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  it was run by the 32.
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  But here's the very, very interesting point.
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  If you invested in the JSE only in the declining cycles,
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  your average annualized return on the JSE was just over 20% per annum.
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  While money market over that same period was 8%.
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  If you invested in a hiking cycle, I'm going to start with the money market
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  first.
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  The average money market yields over that hiking cycle was, it should be higher.
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  was higher, 9% per annum, while the market only 3% per annum.
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  So this is a very, very important point.
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  I'd just like to highlight, I'm not trying to scare the listeners out there to go and
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  sell all this stock now.
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  All that I'm saying is while we have infinity wars, while we're going to have
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  pressure on inflation going upwards,
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  there's going to be pressure on the central banks and our reserve bank to also
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  kick up interest rates.
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  even further.
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  And there's another 25 basis points coming following the 25 basis points we've
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  already had.
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  The ECB is going to raise.
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  The US won't raise because of political pressure and the new man Walsh going in
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  there.
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  But anyway, you make a very good point and we'll expand on that when we've got more
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  time.
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  Dollar-Rand is 16.29.
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  British Pound against the Rand is 21.88.
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  Euro-Rand 18.91.
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  Euro-Dollar 1.16.05.
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  The gold price...
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  It's just doing its thing, isn't it?
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  It just carries on doing this.
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  It's $44.50, let's call it, down $36 an ounce platinum, down 2.5%
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  to $18.94.
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  Hmm.
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  $13.52 is the palladium price,
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  and that's down 2.9%.
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  Oil, it's come off a bit, but it's still up.
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  We're getting to the bottom of the barrel, literally, when it comes to stocks.
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  It's $97.67 for Brent crude, up 1.75% in West Texas, up 2% to $95.68.
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  The copper price down 2.2% to just over $6.50 per pound.
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  South African 10-year bond, 8.485% on the close.
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  The U.S.
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  10-year bond is 4.492, to be precise.
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  S&P 500 futures down about 0.4%, 75.91%.
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  And what else have we got?
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  Bitcoin.
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  I was looking at that.
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  It's gone down from 82,000 to its current level of 66,500.
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  That's a bear market from that 82,000 recent peak to where it is now.
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  Bitcoin is a bear market.
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  What were your ups and downs on the JSC today, please, Skulk?
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  Yeah, just very quickly, just one final say on Bitcoin.
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  It's clearly not the new gold yet, because I listened to you calling the gold price
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  earlier.
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  And then, yeah.
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  When you look at the ups and downs of markets, the market originally started the
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  day pretty good,
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  but with the retracement in world markets, we've seen a big retracement.
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  So, Telcom today gave pretty much back what they took last week.
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  That was down 7.2%, 91% as we mentioned earlier, down over 5%.
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  Process, I mean, this is a bad one.
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  Oh, Process done.
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  4.4% after the good news yesterday.
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  NASPAR is down 3.8%. And Sabania Stillwater, that was down 3.9%.
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  When we look at the winners for today, we had Tungela.
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  That was up 3.9%.
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  Sassel, naturally, the two energy players again.
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  Sassel, that was up 3.7%.
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  RCL, that was up 2.7%.
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  And we had, what was it, Spa.
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  Why?
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  Can you believe it?
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  Spa, that was up 2% for today.
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  So give us the closing indices before we close the show, please.
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  JSE also closed the day at 112,987 points.
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  That was down 89 basis points.
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  Resources down 77 basis points.
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  The industrials down 1.3%.
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  Financials down 0.58%.
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  And SA Property, that was down 0.33%.
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  Scott Glow is a portfolio manager at PSG Wealth Old Oak in Cape Town.
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  And that was the 5 o'clock shadow.
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  The views and opinions expressed in these podcasts are those of Lindsay Williams and
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  various contributors.
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  and do not reflect the policy, position, or opinion of any other agency,
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  organization, employer,
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  or company associated with StrictlyBusinessPodcast.com.
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  Assumptions made on the analyses are not reflective of the position of any other
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  entity other than the speaker or the author.
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  And since we are critically thinking human beings, these views are always subject to
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  change, revision,
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  and rethinking at any time.
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  Please do not hold us to them in perpetuity.