Both AltX and Satrix are investment vehicles aimed at encouraging the participation of the retail investor as an alternative to unit trusts, but their appropriateness as retirement vehicles requires an understanding of the pros and cons of each.
Like the main board, AltX declined precipitously following the international financial crisis in 2008-09. But unlike the main board (which Satrix tracks) it did not bounce back even a little bit during the recovery. In fact, AltX has just dropped below 1 000 for the first time, a far cry from the 5 000 level it reached in late 2007. On a three-year outlook, AltX is 70% lower than the all-share index. AltX is above all about small cap stocks, and whether on AltX or main board, these have not performed well during the recovery because there is so much value to be had elsewhere – and also because they tend to be unresearched. AltX is prone to that weakness that appears to affect all small cap boards: wild booms and busts.
Pros and Cons of AltX
AltX attracts little interest because investors tend to follow momentum, and that’s currently with the large cap and resources stocks – which you can access via Satrix. The biggest drawback of AltX according to Shawn Stockigt, manager of several Stanlib funds including its Small Cap and Value funds, is that unlike Satrix, AltX does not represent any common theme.
He therefore never looks at AltX as an entity – he looks rather at small caps, construction companies or value shares, irrespective of where they are to be found. “It’s a diverse index, with only three or four larger companies heavily weighting it. Companies also move in and out of the board, making AltX irrelevant as an investment ‘theme’,” he says.
Explaining AltX and Satrix
Unlike Satrix, AltX is not an investment product – but a trading platform on which the investor buys individual shares. AltX aims to attract small and medium sized companies, and is also tailored more to the private investor than the institution, though institutions still account for 30% – 40% of market cap – giving some reassurance to private investors.
Satrix is a range of exchange-traded funds, the most popular being Satrix 40, which gives investors the performance of the FTSE/JSE’s top 40 index. It enables investors to invest in a single security that provides a diversified portfolio of the top 40 companies, measured by their market capitalisation, on the JSE. It provides both the price performance of this index as well as paying out quarterly all the dividends received from the JSE’s top 40 companies.
But are these retirement vehicles?
Stalwart investment managers such as Armein Tyer, MD of Sanlam Investment Management and Citadel wealth planner Johan Strydom both recommend the JSE’s Satrix series for the private investor, whether for retirement or savings purposes.
EFTs, such as those offered by Satrix, offer strong competition to unit trusts: to keep costs down they tend to be ‘tracker’ funds that in their underlying basket of shares mirror those used by the JSE to calculate the average growth of various sectors. By emulating the average of the sector, they achieve growth that is better than most actively managed funds – in the short-term. While the performance of Satrix tracks that of its index, a look at AltX’s performance shows a massive spike, whereafter it “fell off a cliff, and hasn’t recovered since,” says Stockigt.
For retirement purposes, he says “you’d have to say ‘don’t go there’, but by delving a little deeper into individual companies there is certainly value to be found.” However, it takes a great deal of personal research. While there are good companies on the AltX, there are equally good or better companies elsewhere, also at favourable valuations, and you can get a diversified portfolio of such value stocks through Satrix. So much value is to be found elsewhere, not only on the JSE’s main board, but more
particularly in offshore investments.
However, small cap stocks do appeal to the contrarian investor, and identifying the right stock can be rewarding. Stockigt points out that if you’d bought Spur a year ago, you would have increased your capital fivefold, with the dividend alone being more than the initial investment. He bought Spur for R2,15, received a dividend of R3,38 and the share was valued in June 2010 at R10,20. He recommends anyone take a certain proportion of their retirement portfolio not likely to be needed any time soon, and dedicate that portion to more high risk punts. These opportunities exist – and there are others – but it begs the question of whether this is a retirement strategy. It is certainly high risk – not the sort of investment you can buy and forget about.
The key weakness of small caps is liquidity, and Stockigt lists this as the most important consideration when buying. Yes, there are bargains to be had – but you have to question whether you can sell the stocks when you wish to. Many AltX companies whose share price is languishing are also ripe for buyouts (M&A). These are good companies with great potential and are being ignored. Once the M&A market itself picks up, they may be ignored no longer. For Satrix (or passive) investors looking to invest in an AltX index fund, no such index exists.
Stockigt emphases that index funds generally adopt a theme, whereas the AltX is far too diverse a group to be a ‘theme’. The same applies when making comparisons to either a Satrix index fund or answering the question of whether the AltX would make a suitable investment towards retirement. Investing in AltX is the same as investing in any single stock. Furthermore, the torrid time the AltX has had in recent years would tend to exclude AltX shares from any but the most high-risk portfolio.
Understand Your Investment Options
“Researching AltX companies is no different from researching any company listed on the JSE,” says Shawn Stockigt, manager of Stanlib Funds. More than that, he again recommends investors look at companies (or their products) they have some knowledge of. Two important gauges of a company are corporate governance and liquidity.
“We look for low price:earnings ratios and high dividend yields and if they appear to offer value, we interrogate further. We also look at companies that have fallen particularly hard as to whether there are valid reasons for the fall. We look for the ‘unloved’ companies. For instance, I’d be looking at the construction space right now, because the market may be over-discounting the bad news.” Value fund managers study the JSE daily prices for companies that stand out and then find reasons for the difference.
Your guide to understanding cryptocurrencies, why they are so popular and how you can use them.
Cryptocurrencies, like other forms of currency, provide a means of transacting goods and services. While other forms of exchange, such as fiat currencies (paper money) are issued, circulated and centrally controlled by governments and regulated by banks, cryptocurrencies are electronic and decentralised.
This means that transactions are peer-to-peer, negating the need, or additional expenses, of third party involvement such as banks or governments. The cryptocurrency market penetration will be facilitated by universal Wi-Fi and global mobile phone dispersion, enabling anyone to move money and assets, peer-to-peer, seamlessly and at almost no cost.
This clearly shows that it’s important that businesses and entrepreneurs understand this market in order to plan for the inevitable shift in the way the world transacts finances.
How does a cryptocurrency transaction work?
The infrastructure supporting the cryptocurrency system is called the Blockchain, a digital ledger that stores all transaction information, and addresses three of the most obvious problems of the current money transmittance system:
- It is decentralised, so transaction data is dispersed and not centrally controlled – this also means that the data is a lot more secure than with more traditional systems because there is not one point of entry for hackers.
- There is no third-party involvement (ie, banks), which makes transaction fees significantly lower.
- Transactions are in real-time and not encumbered by trading hours or bureaucracy.
Who controls cryptocurrency?
Like conventional banking, cryptocurrency has a complex underlying structure issuing currency, recording transactions and allowing people to transact. The main difference is that an algorithm issues the currency and ledgers (not banks or governments), storing the information in blocks. Transactions match up public codes relating to user-held private passwords from their cryptocurrency Wallets.
The transaction amounts are public, but who sent the transaction is encrypted. Whoever owns the password to the Wallet owns the denoted cryptocurrency amount shown on the ledger. Even though transactions are added sequentially, many may be added to the ledger at the same time. These chains of transactions grouped in blocks make up the Blockchain.
Are Cryptocurrencies Here to Stay?
Cryptocurrencies, and with it the Blockchain, have unlocked value and opportunities for commerce that would’ve been hard to imagine even a few decades ago. Here are 5 reasons why Cryptocurrency is here to stay:
- A transaction, once confirmed, cannot be reversed or tampered with. So, they are secure and indelible.
- Cryptocurrency is transferred between Blockchain addresses. So, no real-world entities are associated with the accounts.
- Transactions are processed instantly and globally. Therefore, there is no delay in transfers.
- Cryptocurrency uses cryptographical processes. So, funds are locked and only available to private key owners.
- Generally, cryptocurrency does not require permissions from an authority.
Investing in cryptocurrencies
When looking to invest in cryptocurrencies, keep in mind that they are just like other stocks and subject to change in value based on supply and demand. In fact, since cryptocurrencies are not insured, and exposed to market fluctuations, they bear the same risks as stock markets.
Some exciting work has however been done to address these potential fluctuations while also continually optimising cryptocurrency value by companies such as Krypteum, who offer an advanced A.I enabled investment crypto coin.
4 Strategies For Impact Investing
Impact investing isn’t for everyone, to be sure, but with a few investing strategies to assist you and a bit of patience, you should be able to accomplish your goals.
Harnessing the positive effects of enterprise is easier than you think. Investors can have beneficial effects on a number of social, environmental and entrepreneurial issues with sound impact investing strategies. “Around the world, inspiring pioneers are demonstrating that business and investment can be a morally legitimate and economically effective way to tackle social challenges,” writes Anthony Bugg-Levine for The Huffington Post.
Investing in clean, renewable energy or purchasing private stock in nonprofits aimed at providing education to lower income areas are just a few examples of socially responsible investments.
By approaching impact investing intelligently without pursuing returns ravenously, investors can find considerable profitability while contributing to a greater good. In fact, a 2013 study conducted by GIIN and JP Morgan found that 90% of impact investors reported that they were meeting or exceeding their financial projections.
Here are 4 powerful strategies for effective impact investing:
1. Develop a clear plan
Developing a successful approach to impact investing means taking the time to develop a clear plan. Exploring your options, researching the opportunities available to you, and weighing those options carefully will help you remain realistic about the risks and the rewards, both financial and social, of your investments.
It’s important to answer questions like the ones below before making any impact investing decision:
- What kind of impact do you wish to make?
- Which is more important to you: your finance goals or your impact goals?
- What do you want your risk tolerance to be?
- What vehicles will you use to achieve your goals?
- Do you want to directly invest or invest indirectly?
Questions like these will help guide you and root you to a slow and steady plan of action.
2. Thoroughly investigate tradeoffs
Impact investing can be a mixed bag. Impact investing funds have grown in number, but it is uncertain if their profitability has risen with it. “In the last 10 to 15 years, the number of social impact funds has grown from a handful to several hundred,” explains a Wharton article examining impact investing.
“This growth has occurred despite the widespread assumption that in making investments intended to achieve social objectives, investors are accepting more modest financial returns than they would if they were to choose investments solely on the basis of their return potential.”
The vast majority of impact investment funds are private equity funds. These funds don’t make their returns public, so you may hesitate to place your trust in them without some evidence of profitability. Additionally, you’ll need to understand the tradeoffs concomitant with impact investing, such a loss of liquidity and the possibility of diminishing returns.
3. Concentrate on fixed-income investments to lower risk
If investing in private equity funds proves too risky for you, then you may want to consider pouring some of your resources into fixed income instruments, such as municipal bonds. These bonds finance important and impactful projects, like building hospitals and affordable housing, while providing you with steady interest payments. “Municipal issuers are typically mission-driven; that is, their projects tend to address environmental, social and community development concerns,” says Goldman Sachs research analyst Michael Kashani.
4. Stay realistic
It can hard to juggle both a mission to have a positive impact and a desire to make beneficial social changes. Trying to accomplish both goals requires a metered approach, one with sustained patience and dedication to staying rooted in realistic expectations. You may feel tempted to invest in an array of pressing issues and to make immediate positive change. Overextending yourself can frustrate the process and, in the worst case, preclude you from continuing to invest in important, socially conscious projects and companies.
Managing Director of Integrated Performance at Uhuru Capital Management, Jed Emerson, explained impact investing’s two-fold mission to contribute to social good and to create wealth as a cohesive – rather than dichotomous – endeavour, saying, “There is an idea that values are divided between the financial and the societal, but this is a fundamentally wrong way to view how we create value. Value is whole. The world is not divided into corporate bad guys and social heroes.”
Indeed, impact investing, while certainly challenging, can be a source of both fulfillment and wealth. Developing a clear plan and staying realistic will help guide you through the process. You’ll need to understand tradeoffs to ensure you’re two goals don’t end up competing against each other. It’s even possible to lower risk by investing in fixed-income options, like municipal bonds.
Ultimately, impact invest is a personal affair. Your goals will be tailored to what you deem important to you. Research your options, consult financial experts before embarking on your next investing journey, and remember to keep in mind the impact you wish to have so you won’t get discouraged when you encounter obstacles. Impact investing isn’t for everyone, to be sure, but with a few investing strategies to assist you and a bit of patience, you should be able to accomplish your goals.
11 Things You Need To Know About Bitcoin
The cryptocurrency has had a tumultuous existence so far.
11 Bits about Bitcoin
Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It’s a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.
For starters, here’s an overly simplified explanation of Bitcoin: It’s a digital currency (there are more than 800 now) that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialised hardware to process transactions, secure the currency’s network and collect bitcoins in exchange. Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.
Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters.
Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you’re talking about next time it inevitably comes up.
The birth of Bitcoin
The origins of bitcoin trace back to 2008, when its creator, who went by the pseudonym Satoshi Nakamoto, published a proof of concept for Bitcoin. The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work. Bitcoin’s birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.
An elusive creator
The true identity of Bitcoin’s creator has never been confirmed. Newsweek claimed to have found Bitcoin’s creator in 2014, identifying Temple City, Calif, resident Dorian Satoshi Nakamoto. He has vigorously denied it. In 2015, an Australian entrepreneur named Craig Wright said he was Bitcoin’s creator, but he couldn’t produce the evidence to support his claim. Whoever Nakamoto is, that person is very rich, as the creator is estimated to have mined a million bitcoins in the currency’s early days.
Very expensive pizza
The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.” As of Aug. 28, 2017, 10,000 bitcoins are worth about $43 million.
You can spend bitcoins
Federal Bureau of Bitcoin
At one point, the U.S. government was one of the largest holders of bitcoin. In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins. Investors have been making a killing by bidding on government-seized bitcoins.
A mountain-sized setback
In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange. About $460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.
The billionaires’ takes
Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency. “Stay away from it. It’s a mirage, basically,” he told CNBC. “The idea that it has some huge intrinsic value is a joke in my view.”
Fellow billionaire investor Jamie Dimon, chief executive of JPMorgan Chase, had even stronger words about Bitcoin: “You can’t have a business where people are going to invent a currency out of thin air. It won’t end well … someone is going to get killed and then the government is going to come down on it.”
But not all billionaires are against Bitcoin. Mark Cuban has said its value is inflated, but he recently invested in a venture capital fund that backs cryptocurrency. Richard Branson, however, has spoken more optimistically about it.
Related: The Currency Revolution
Wealthy twins and a smart teen
Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they’d had). They invested $11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund. The agency rejected the idea earlier this year.
Another is investor and entrepreneur Erik Finman, who invested $1,000 into Bitcoin when he was 14 years old and is now a millionaire.
Celebrities want in
Celebrities have also expressed enthusiasm for the cryptocurrency. Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin start-ups.
Support from a big financial institution
In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies. The company allows its clients to use the Fidelity website to view their bitcoin holdings held through digital wallet provider Coinbase.
“This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them,” Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.
A hard fork
On Aug. 1 2017, Bitcoin experienced what’s being called a “hard fork” as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting.
Here’s how Rob Marvin of PCMag explains the situation:
“The Bitcoin fork speaks to a fundamental ideological rift over what’s more important: Preserving the decentralised nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments.” Bitcoin Cash allows larger blocks of currency and more transactions per second.
This article was originally posted here on Entrepreneur.com.
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