Nerina Visser: Rather focus on the prospects than new listing prices


NO LONGER a lady-in-green, former Nedbank [JSE:NED] ETF Strategist Nerina Visser today gave us a bit of insight into the history of Exchange Traded Funds in South Africa, gold’s performance in the last couple of days and the current interest in inward listings on international property of the corporate variety, and why. The team in the CNBC studio touched on the perspective shared by Peter Armitage on R3.00 companies, and compare them then to super-performers like Anchor Capital, who went up from R2.00 to R10.00 in recent history. That’s some growth.  – CH

ALEC HOGG:  The ETF Strategist from Nedbank , Nerina Visser, is with us in the studio.

GUGULETHU MFUPHI:  She’s not from Nedbank, Alec.

NERINA VISSER:  I followed Jeremy Sampson’s lead and left the company.

ALEC HOGG:  Oh, so you aren’t wearing Nedbank green anymore.

NERINA VISSER:  Not at all.

NERINA VISSER:  No.  I would still wear green, but not because of Nedbank.


NERINA VISSER:  Okay, so independent but still the same game – still the ETF game, ETF strategy, and advisory.  Same game, different boss…much harder boss, this one.

ALEC HOGG:  Well done, Nerina.  As a fellow entrepreneur, I have great admiration for anybody who follows their dream and my goodness, clearly you’ve picked the right time.  Just before we talk about the markets, very quickly: ETF’s are finally, starting to capture the attention of South Africans.  How much upside growth is there in this market?

NERINA VISSER:  Massive. Alec, we’ve hardly started in terms of ETF’s.  When you look at the growth profile of international markets (U.S. of course, but also Europe and even other developing markets), South Africa still has a lot of growth room to go.  However, I think it’s important to see it in the context of how long it took the collective industry – the unit trust industry, essentially – to reach a similar sort of level.  You know that trusts were first listed, or launched in South Africa, in 1965.  It took them 35 years before they really reached major mainstream comfort in the investor’s mind.  The ETF industry reached that point within ten years so it really is, sort of, just on the cusp of the typical S-curve (your strong growth), in excess of R100bn market cap on the JSE in terms of exchange-traded products, and there’s still scope for a lot more.

The industry has matured to the extent that it is no longer just a single, large ‘let’s track the market’ top-40 type of ETF.  Rather, these are targeted sectoral exposures or country geographic exposures that you can actually use to put together a balanced portfolio, really focusing on ‘what type of exposures do I need in my portfolio’ and get it through ETF’s very efficiently – not just cost efficiently, but execution and operationally, as well.

ALEC HOGG:  Thanks to Satrix for doing all the hard running for all those years.  Satrix-40 people understand.  So, if you have a Satrix-40, why not branch out?  Nerina will help you.

NERINA VISSER:  Absolutely.  If you think about it, that was only Equities and it was only the JSE.  On the JSE, we now have ETF’s listed that cover other geographical regions, other asset classes, property, bonds, currencies, and commodities so really, looking beyond the typical Top-40 Index trackers and realise that less than ten of the 70-odd are listed, which focus solely on the Top-40 Index.

ALEC HOGG:  Gugu wants to ask you about gold ETF’s.

GUGULETHU MFUPHI:  Maybe that’s where future opportunities do lie, in light of the fact that palladium was one of the strongest performers last year.

NERINA VISSER:  Absolutely.  Of course, in terms of gold ETF we have the ETF’s that track the physical metal.  We don’t have an ETF that tracks gold share per se.  What is quite nice in terms of the offering on the JSE is that you can choose between gold in ETF form, (which is physically backed), you can look at gold in ETN, (which is almost like a promissory note but will give you the performance of gold).  In that case, you can choose between either the gold price in Rand terms or the gold price in Dollar terms.  One can even remove the effect of the R/$ and take a pure view in terms of the gold price itself, so it’s really worthwhile for investors to explore the full range of exchange-traded products that are available on the JSE and see how and where it can plan an appropriate role in their portfolio construction.

GUGULETHU MFUPHI:  What are your thoughts on resources, overall, and those particular trackers?

NERINA VISSER:  Well, I’m afraid that I think resources are going to remain under pressure.  We still, definitely have a supply glut worldwide.  There’s too much supply and not enough demand.  Obviously, we see it most prominently in oil and to some extent, in things like coal and copper, etcetera.  One could argue that gold is a different type of animal.  It’s not an industrial metal.  It’s more an investment metal.  When we talk about platinum or palladium though, as an example, there’s very much of an industrial focus.  If you don’t have the economic growth coming out of the world (as we see, these growth forecasts keep being pulled back), the demand for the physical metal is just not as much as one would otherwise have seen.  I remain very cautious on commodities on both the physical metals as well as the commodities stocks.

Although of course, what we see with current gold prices and shares coming off a very low base, these things are very geared so when you have a jump in the gold price as we saw over the past two days, it translates into massive gearing and big jumps in share prices for the gold companies.

ALEC HOGG:  I think that as we were talking earlier in the week with other market commentators (i.e. yesterday, with Sasha), he agreed that you have to trade gold if you’re going to do anything with the market. He stays away. Do you trade it?

NERINA VISSER:  I prefer to be a longer-term investor and rather, having a strategic exposure to something for longer-term reasons but yes, the precious metals and the other commodity ETN’s and ETF’s for example, offer great trading opportunities because they are single commodity focused.  They do trade a lot more as well, like a single stock for example.  Contrast that to Satrix-40 or whatever, where you’re getting a basket of shares.  There is also a basket commodity ETF available on the JSE but again, you will have that (almost moderated) performance, just as you would have between an index and a single stock.  Yes, there are different ways that the views can be exercised in portfolios.

GUGULETHU MFUPHI:  What about ETF’s that are unique to the African growth story?

NERINA VISSER:  Oh, I love that story.  We have two listed on the JSE.  The one that I prefer is the Standard Bank Africa Equity ETN.  (We don’t have ETF’s per se.)  They’re ETN’s but yes, they do hold the physical underlying stocks as well.  The reason why I prefer that one is it’s a lot more broad-based and diversified in terms of the African story, than the DBX Trackers – Africa 50 – that they have.  The Africa 50 is a Top-50.  It includes South African companies so when we talk Africa, we have to be quite clear.  Is it ‘including South Africa’ or ‘excluding South Africa’.  In addition, in the case of Standard Bank 1 – very importantly – is that it’s not just companies that are listed on African Stock Exchanges.  Forty percent of that ETN is also, companies that are listed on first world markets, but have operations primarily in Africa.

Those would typically be your resources companies and your commodity companies listed in Toronto, in London, and in Australia etcetera.  Even companies like Tullow Oil…  It is now secondary listed in Ghana as well, but its primary listing is in London and that’s one of the big weights for example, in ETF’s and indices that focus on African operations rather than just the African stock exchanges.

ALEC HOGG:  You’re talking about listings from other parts of the world.  It’s been interesting to see how many inward listings we’ve had on the JSE in the last year.  You can now buy East European property – one of the bigger Top-100 stocks.  Today, we got a SENS announcement about a company called New Frontier from Mauritius.  It’s much smaller, but this seems to be a bit of a trend.

NERINA VISSER:  2014 was a huge year for the JSE in terms of new listings.  I don’t know much about New Frontier and I’m not familiar with the new listing that’s coming but certainly, what we saw in 2014 is that many of those new listings were property-related.  There are some corners of the markets that’s concerned that this is indicative of a bubble.  I’m not in that camp.  I’m of the opinion that there’s a lot of pent-up demand, both in terms of searching for yield but also, a very strong and solid growth story in global property.  Now I’m not necessarily talking about residential property that might be in bubble territory in some areas but rather, a structural demand for real estate giving you the yield.  If we look at the South African property market for example, especially in your corporate space, you have rental agreements that increase with inflation or inflation-plus.

That’s really, the rate that at which, your yield on those investments will continue to grow.  A property investment gives you both the potential for capital gains, which can be quite volatile but then it’s underpinned by this stable yield, which continues to grow at inflation-plus type of rates.  That’s what makes it so attractive.  The Property Index and the Property ETF’s therefore, were some of the best performers in 2014 and that is a trend that I do believe will continue into 2015.

ALEC HOGG:  The best performer, overall.

NERINA VISSER:  Not quite, no.  Not quite the best.

ALEC HOGG:  It has to be Anchor Capital.  From R2.00, it’s nearly R10.00.

NERINA VISSER:  It was very close.  It was the second-best performer.

ALEC HOGG:  Did somebody beat it?

NERINA VISSER:  Yes.  Well it’s an AltX stock so it is something, which maybe not many people are looking at but yes, it’s a huge success story.

ALEC HOGG:  Every trader and his dog is looking at that one.  They’ve issued another cautionary this morning.  They’re not looking at an acquisition, but acquisitions.  This looks a little bit like a bit of a bubble to me.

NERINA VISSER:  Well, I have a lot of confidence in management at Anchor.  I think that they are very shrewd and I think they know the market well.  Whether that translates as positively into managing a business, will remain to be seen.  I’m prepared to give them the benefit of the doubt.

ALEC HOGG:  At R9.00?

NERINA VISSER:  I was just going to say ‘but the share price has run very hard’ so I think that any investor looking at this level to get into it, needs to look at ‘what are these new acquisitions’.

ALEC HOGG:  Peter Armitage was in our studios, saying ‘at R3.00, it was expensive’.  He thought that at R3.50, they were putting him on a treadmill.  At R9.00, I wonder.  The poor guy must be going to the gym 24/7.

NERINA VISSER:  Well, it depends on what they’re doing with these new acquisitions.  What are they?  To what extent is that boosting the earnings base – or not?  That’s what you need to ask yourself.  The R9.00 company of today with its latest forward- looking outlook, is a different company than the R3.00 company, as Peter spoke about it a couple of weeks or months ago.  That’s what I’m trying to say.  Don’t judge the company as it listed.  Look at its prospects for the 1/2/3 years ahead and then decide.  Is R9.00 expensive or not?  I’ve not done that type of analysis and probably won’t but I think that investors who are interested…that’s what they need to be looking at.
GUGULETHU MFUPHI:  So the proof is in the pudding – not even the treadmill.

ALEC HOGG:  Well, let’s see what the pudding looks like.  We don’t even know what the pudding is.  It’s just vapour-ware at the moment.

NERINA VISSER:  The problem is, if you have too much of the pudding then you need the treadmill.

GUGULETHU MFUPHI:  MTN though, with the likes of Naspers [JSE:NPN] on the up today – no significant mention as to what’s happening there.  Are trading just showing confidence once again, in those stocks?

NERINA VISSER:  I think we’re seeing a little bit of risk appetite coming back into the market.  We had quite a mixed jobs number from the US on Friday and I think there’s a contradiction.  On the one hand, you have the jobs growth and the unemployment rate showing positive trends but then the actual, hourly wages number is not as positive.  I guess it depends on which glasses you put on when you look at that jobs number to decide ‘is it positive or not’.  The initial reaction was not positive so we saw weakness in the global markets late Friday and certainly, yesterday as well.  I think winds of change are now starting to blow from the US in particular.  Results season has started.  Alcoa are always the first to come out.  There’s a good set of results.

We have a couple of heavyweights coming out later this week so I think the focus is now shifting again, from the macro issues to the company-specific issues and those (especially in the US) appear to be heading for a good earnings season.

ALEC HOGG:  Thanks Nerina, for your insights.  My apologies for not realising that you’re an independent operator now, an ETF strategist.  That was Nerina Visser.

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