Harbour Wealth Monthly Client Newsletter: A Good Dose of Russian Bear!

February 2015

February was a surprising month in the market considering all the doom and gloom about ESKOM and some major geopolitical issues in the Middle East, Russia and Ukraine. Who would have expected our local equities to give returns of 4.07% in one month! Listed property returned 3.2%, this despite many feeling listed property did not have much left to offer. This is a sector we are paying attention to and while we still think it offers more than bonds, we may bank some profits after the great run we have had for our clients over the past 14 months.

Not only were we pleasantly surprised locally, but the MSCI World Index returned 5.9% in dollars in a month, reflecting equity growth mainly in US, Europe and Japan. Of the emerging markets like China, India, South Africa, and Brazil who returned 3.1% for the month, who would have thought the star of the show would be Russia delivering 22.8% in dollars. You would have needed courage and a lot of vodka to have bet on Russia considering the issues it is facing for its current stance on Ukraine and alleged invasions of sovereign spaces, which has resulted in some sanctions. This illustrates one of the great maxims of investing and that is:

“Be greedy when others are fearful and fearful when others are greedy”

It’s not always easy to commit to these opportunities, and that is why diversification is so important as holding a little bit is often better than holding nothing. While we make mention of one month numbers we should not get carried away and extrapolate these returns as a prediction of what’s to come. Wealth planning is long-term discipline and globally and locally we are still facing some serious headwinds. While we have delivered great returns for you our clients we need you to moderate your expectations over the next 12 months. While we hope to continue achieving fantastic returns, this will become more challenging. Please view our full range of model portfolio returns at www.habourwealth.co.za.

But unfortunately it wasn’t all good news for our clients during the month. As much as we tried to growth their wealth, the tax man wanted his fair share. So during the annual budget speech the marginal tax rate was increased by 1%, the first increase in 20 years, which also pushed up the effective capital gains tax rate. The good news was that exchange controls were further relaxed, so now our clients can take R10 million offshore per year, as opposed to R4 million, plus tax free savings accounts were introduced. Now SA individuals can invest R2500 monthly, limited to R30 000 annually, with a lifetime contribution limit of R500 000 into a new investment product that is free of ALL tax! Please come and speak with us about either investing directly offshore or starting your own tax free savings accounts, as it’s not about how pretty the box is wrapped… it’s about the actual gift or asset allocation inside. At Harbour Wealth we combine all our expertise in assisting you in selecting, blending and rebalancing the best possible mix of funds in order to limit costs and boost your growth over the long term.

A nice accolade for Harbour Wealth is research just released by PSG Asset Management showing how we are delivering on our goal when blending active unit trusts with passives and that is selecting unit trust mangers that have demonstrated an ability to beat the index consistently. The two managers that have been in our solutions since inception are two out of four managers that have outperformed the market 70% of the time over the last 13 years. (The full slide is available on our website)

We look forward to hearing from you soon!

The Harbour Wealth Team