Simon Shares

• Greenest start to a year since the 1960's, Top40 is 6.9% up year-to-date.
• MultiChoice (JSE code: MCG) has unbundled out of Naspers (JSE code: NPN) with MultiChoice closing at R106 and Naspers off R125 on the back of Tencent weakness over night in Hong Kong. So no value unlock and with fair values for MutliChoice being between 8500c - R150. Most people I speak to say at current prices if you received MultiChoice shares you should hold them at this price. Also MultiChoice will remain in the Top40 index with Truworths (JSE code: TRU) exits Top40 Friday morning. Those saying MultiChoice is dead, well maybe in time. But nothing is that linear and be careful of taking a dislike for DStv pricing out on the share - they're different beasts. They could get bought by a telco (we're seeing that in the US), they could get the subscriber growth they're targeting in the rest of Africa, Showmax could take off of they could muddle along or they could go broke. Lots of options.
  • Below are the index changes effective at open 1 March 2019.
    • Top40; MCG stays TRU exits
    • Indi25; MCG stays MTH exits
    • Findi30; MCG stays NTC exits
• Shoprite* (JSE code: SHP) results were not as bad as I expected with operating margin down 1% at 4.4% but much better than I expected and still about twice that of Pick n Pay (JSE code: PIK). Lots went wrong, probably half managements fault (strikes and IT upgrade issues) and half just what happens some times (Angolan hyper inflation and zero food inflation). At current prices the stock is attractive. Interesting is that Wiesse wants to sell his voting control shares that have no economic rights but some 32.3% votes. They've been valued at some R4billion when Star listed but they're hard to value and I'll wait and see what the plan is here.
• Tomorrow, Friday 1 March, the annual tax-free limit resets. Find the JSE Power Hour video we did here.
• Great comparison between the locally listed global property ETFs from Sygnia and Core Shares.
• Up coming events;
  • 7 March ~ JSE Power Hour: Finding value the Benjamin Graham way 

* I hold ungeared positions.

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JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

Making the CSEW40 SMART

The CoreShares Equal Weight Top40 ETF (JSE code: CSEW40) has long been a favourite of mine, but now CoreShares want to change the ETF to a multi factor ETF under the code SMART.

Those factors are;

1. Value (portfolios of cheap shares outperform portfolios of expensive shares)
2. Momentum (portfolios of recent share winners continue to win in the near term)
3. Size (portfolios of small companies outperform portfolios of large companies) e.g. Equal weight
4. Quality (portfolios high quality shares outperform poor quality shares)
5. Low Volatility (portfolios of low risk shares outperform high risk shares)

I chatted to Chris Rule of CoreShares asking why the changes? What will the new methodology be and what's its attraction? Lastly how will the process work - including voting by existing holders of the ETF.

I initially was too thrilled with the changes as I like the equal weight methodology. But one of the key points for me is how many stocks I effectively get exposure to and this is illustrated by the chart below. with a generic Top40 ETF 12 stocks drive returns. In an equal weight Top40 all 40 stocks drive returns. The new SMART ETF will see 41 out of the 52 stock driving the returns. So I end up with a wide diverse ETF which is exactly what I want.

Kristia also wrote a blog post on the changes here.

Contact Core Shares;

• info@coreshares.co.za
• CoreShares.co.za
• Twitter.com/CoreShares

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JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

Simon Shares

• Eskom is "technically insolvent" and load shedding is back, why are we surprised? This was promised us when we had some in December. Bottom line it's a mess, costly to the economy and fixing Eskom is critical and very difficult. Watch the budget next week.
• EOH woes continue as the stock lost over 20% on Tuesday on the news that Microsoft had cancelled their partnership agreement. In a late SENS the company stated the revenue was not material, but investors have three questions they're asking themselves. 1// Can we trust EOH management ?? 2// How do you get a Microsoft partnership agreement cancelled ?? 3// Why is EOH management always so slow on shareholder communications ??
• Curro (JSE code: COH) results are not bad, albeit HEPS +23% with a PE of some 40x is light and the stock is expensive. We are starting to see operational leverage as revenue is +19% and HEPS +23% and a 12c dividend. However debt has jumped almost 20%, but still manageable. Learner numbers increased 12% while Meridian has halved their losses.
• Woolies* (JSE code: WHL) lose two non-exec board members with immediate effect. Pushed or jumped? Likely the latter.
• Wilson Bayly (JSE code: WBO) has been one of the very few construction stocks holding it together, until now. A trading update suggests profits 80%-100% lower after making a mess of an Australian contract.
• Wild and tax-free.
• Upcoming events;
  • Tax-free investing review, who ate the returns?

* I hold ungeared positions.

Managed funds

Managed funds are when you hand over your hard earned money to a third party to invest or trade on your behalf, supposedly with great returns in offer. Sure it works with the right processes in place, but it mostly carries huge risk.

Firstly let me state up front I have never heard of a FX or crypto managed fund making money. They've all been scams with the first indication is that you find them on Facebook offering huge returns. They have zero verifiable track record and zero regulation or audit processes.

Most trading managed fund accounts also end in tears.

So how do we find a managed fund? Well firstly a unit trust, hedge fund or ETF is a managed fund of sorts with tons or regulations protecting the investor. Why not use these? The issue is usually that we want a managed fund with grand returns, don't we all?

But seriously, some questions to ask;

• Who are you registered with? FSCA as an absolute first port of call.
• Audited track record.
• Compliance and dispute process?
• Fees. Here things get tricky as there is likely a managed fund fee and performance fees. But also transaction fees that can be excessively high.
• Mandate. What are they transacting in and what are they trying to achieve? Income, growth, derivatives?
  Withdrawal process.

The short answer is that if you want a managed fund, buy a collective investment scheme. No you won't get rich in a hurry, but you'll also likely not get ripped off either.

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JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

Simon Shares

• A green January with financials the winners but 2019 is going to be a wild ride, especially in the lead up to the elections expected in May.
• Tax-free year end is end February, don't leave it for the last minute if you want money in this tax year ending 28 February. Budget on 20 February we'll see if we get any changes to the annual limits.
• Clover (JSE code: CLR) is delisting at 2500c. A great price considering it was around 1500c last year. I held this stock for a number fo years as I considered it to have great promise, but it never delivered on that promised so I exited.
• I have had some questions around two stocks I own, Santova* (JSE code: SNV) and Metro File (JSE code: MFL). Both are under share price pressure and both finding growth hard (latest results were OK, nothing special). The share price decline is a factor of liquidity and small stock sentiment. Right now if I was two sell my holdings in each the share price would fall about 10%, that is not normal. Add to that some large sellers (certainly in Metro File) and prices are under pressure. I am holding. Not selling as I happy with the companies nor buying because I don't see the prices rerating higher any time soon, if anything likely lower. More in the main body of the show.
• Wild and tax-free.
• Upcoming events
  • Tax-free investing review, who ate the returns?

* I hold ungeared positions.

Where's the liquidity?

In the past week I have seen three reports that all point to a drying up of liquidity on the JSE. Now sure some has likely moved to A2X, but not any significant amount. Bottom line liquidity has fallen fairly markedly and this has impacts, most notable on share price movements.

So where has it gone? Simple, investors are scared. Scared of elections. Sacred of EWC. Scared of an under pressure consumer. Scared of trades wars. Scared of no returns. Sacred of their shadow? So they are buying less leaving us with fewer buyers and sellers have mostly exited sitting on the sidelines with their cash.

This whole vanishing liquidity is markedly more acute in the mid and small cap space and it is hurting the stock prices. Even us small private investors hurt the stock as we exit and many are throwing in the towel and selling, pushing prices lower causing more to throw in the towel and sell.

This is typical in late stage bear markets (late stage bull markets see extreme high levels of liquidity).

So what do we do? Well we double our research and make sure we really do like the stock, and if we do - we hold. You can buy more but I think we're a long way from the end of the liquidity squeeze on the small and mid cap stocks. If you're wanting to buy into this low liquidity, be careful. Place bids in the market and wait to be hit, even cheeky bids lower down will potentially be hit. But don't expect liquidity to return tomorrow, it may - but it may take a while longer.

Further bad news for holders of small stocks is that when liquidity returns it'll come into the large cap Top40 stocks first, then eventually filter down to the mid and small. Point is it will return one day, we just don't know which day.

As an aside, this impacts JSE earnings as they make money from data, listings and trades. less trades is less income with a fair fixed cost base.

Last important point. Liquidity is NOT an issue with Exchange Traded Funds (ETFs) as they have a market maker. The market maker is (supposed) to be consistently in the market either side of fair value with their bids and offers. So we can always get what we want at close to fair value.

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JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.