The unemployable become employable

images-40Luthuli Capital was founded and structured as a Pan-African multi specialist company that offers a global approach to wealth management portfolios. The company offers investment advisory services to local and foreign individuals and multinationals, among others. I’m joined in the studio by one of the co-founders, Mduduzi Luthuli. Thank you so much for your time.

MDUDUZI LUTHULI:  Thank you for the invitation. Glad to be here.

NASTASSIA ARENDSE:  Let’s take it back to the beginning and start off with how Luthuli Capital came together.

MDUDUZI LUTHULI:  I think if you are going to start a company it’s always something that’s there. It’s just a matter of acquiring the skills for you to be confident to run the company and wait for the circumstances to be there.

I’ve been in the corporate sector now – from banking into the financial advisory industry – for about seven years. My previous employer gave me a great opportunity in management and it’s really there where I got to cut my teeth and get to the point where I realised I think it’s time for me to go out there and do this on my own.

We’ve got two offices here in Sandton and one in Durban. It really was the Durban office that was also the big motivator because we’ve got a project going on down there which involves the internship, and that also just got to that point where, if ever you are going to do this, this is the time.

NASTASSIA ARENDSE:  And I know that you work with Trudy as well. How did the two of you decide that it’s our synergies and both our characteristics and everything we’ve learned from our own sort of corporate size that can work together – and let’s do this?

MDUDUZI LUTHULI:  We both come from the same industry. So from a product knowledge side, services, the competency was there. I think really where the synergy comes from is they say I’m the driving force, I’m the bully, I’m the hard-core one. My real talent is bringing the clients into the business, going out there and selling the dream and convincing them that this is something you should back.

And Trudy, as head of client services, is the mother of the business, if I can put it that way. And really her strength is in client retention. You play a fine balance between finding new clients and also looking after your existing clients. And that’s really where we work with each other’s strengths and work very well together, because she heads up the client retention. I bring them and she looks after them.

NASTASSIA ARENDSE:  How competitive is the industry that you are in right now?

MDUDUZI LUTHULI:  It’s extremely competitive. I don’t think I have the words to truly describe how competitive an industry it is. One of the fantastic things and one of the shining lights about South Africa is that we have a very good financial system. Or let me say that the governance and the legislation here is very good and that really translates into the financial advisory system with the initiatives that the FSB puts out there – the financial planning institution, to make sure that as financial advisors or wealth managers we move away from a culture of just selling for the sake of selling, and seeing ourselves and conducting ourselves as professionals and as a professional field.

So now you are working in an industry where you have exceptional professionals, people giving advice. And really you have to convince the client as to say why you. And I would even say you have very established players, your Allan Gray, your Stanlibs of the world, your Old Mutual, your Liberty. So as a new company going after clients and acquiring big clients, there’s already someone existing there, giving them advice; there is really an existing relationship. Now you have to convince them to say: what am I bringing to the party that will convince them? It’s very competitive.

According to Nassim Black Swan

Nassim Taleb, hedge-fund adviser and author of “The Black Swan,” said last week that investors are more afraid of a Donald Trump presidency than they should be. So far, he’s not wrong, considering the insane rebound in stocks overnight.

“In the end, Trump is a real estate salesman,” Taleb told CNBC in an interview leading up to Election Day. “When you elect real estate salespeople to the presidency, they’re going to try deliver something.”

Whatever he delivers, of course, will impact some more negatively than others. Taleb shared his thoughts on who that might be on Twitter as a Trump victory was taking shape late Tuesday night.

Oh, and he almost forgot “the big losers: the neocons. We have at least four-to-eight years of watching them drive Uber cars/taxis in D.C.,” he added.

At any rate, he said if the market does fall apart, it won’t be because of Trump.

“Because the market’s been on Novocaine now since 2009… because the market’s weak anyway,” he said, “you need to be prepared regardless of the election.”

Tips save for a new car

In this advice column, Zipho Mnyande from Alexander Forbes answers questions from a reader who wants to save up to buy a second car.

Q: I would like to start saving for a second motor vehicle. My current car is paid off and still in very good condition, so I don’t think I will need to replace it within the next five years.

I would therefore like to save the money that I was paying towards my monthly instalments to eventually buy a second motor vehicle for cash. Therefore, my savings term would be at least five years.

I have a money market fund with Allan Gray at the moment, but I find it difficult not to use these savings for other larger expenses. I would therefore prefer to use something that does not allow immediate and easy access to my savings. What would be best for this purpose?

The first step one should take is to identify the investment objective. In this case that is a car, with an assumed cost of R300 000 at the end of a five-year term horizon. It is important to understand this time horizon as well as your appetite for risk to decide on the most suitable investment vehicle.

Some of the most popular after-tax investment vehicles include endowments, unit trusts and the tax free savings accounts. These vary in terms of accessibility and tax implications and we would need to know the clients full financial situation before recommending a suitable product.

For a client who wants to lock their investment for a five-year period, an endowment would be a vehicle to consider. We do, however, have to take into account their marginal tax rate when making this decision.

This is because endowments are taxed within the fund at a set rate of 30%. This benefits investors who have a marginal tax rate greater than that, but can be prejudicial if their tax rate is lower.

Because the money in an endowment is taxed within the fund, your withdrawals are tax free. In order to get this benefit, however, endowments have a minimum investment time horizon of five years. At that point the money can be accessed or the investor can choose to extend the policy term.

You would be able to choose different underlying investments within the endowment, and given your time horizon, a moderate-to-balanced portfolio will most likely be appropriate. It is, however, important to take your risk appetite into account.

To know whether this would really be the best option for you, however, it is important to get an understanding of the tax implications from your financial advisor.

Zipho Mnyande is a financial consultant with Alexander Forbes Retail in Johannesburg.

Do with bonus money

In this advice column, Mikayla Collins from NFB Private Wealth answers questions from a reader about where to invest a 13th cheque.

Q: A lucky investment some years ago is bearing fruit. Last year, I effectively got a 13th cheque from dividends, and I expect similar this year.

Instead of blowing it again, I was hoping to put it somewhere that will pay me a monthly income, maybe over two years. What is available out there that can serve this purpose?

A lot of people who get a bonus or once off additional income for whatever reason, tend to ‘blow it’ as you have pointed out. It is therefore a very good idea to try to think of better things to do with the money. I would, however, suggest that you consider not only your immediate or short term needs but also the long term potential of any extra income you receive – no matter how small.

If you have a need for extra monthly income, which might be the case if you are currently using a credit card or overdraft because your expenses are close to or more than your current monthly income, then I support your idea of putting the money in a vehicle that will allow you to supplement your income for the next two years.

A two year term, however, is a very short time horizon for an investment and I assume you intend to be drawing the full amount over the two years. In other words, you will be left with nothing at the end.

If so, you will need access to the money and very little, if any, risk. With these constraints in mind, I would suggest either multi-asset income unit trusts – the top funds produce between 8% and 10% per annum historically – or a bank savings, call or money market account with cash immediately available. These bank accounts produce between 5.5% and 7.5% per annum, depending on the amount.

Let’s use an example and say the amount is R50 000. If you can achieve returns of 10% per annum for the next two years, this will produce an income of R2 307 per month for 24 months before being depleted. At 7% per annum, the monthly amount will be R2 194 per month, so there is only a small difference, which means it is probably not worth taking the extra risk.

The question is whether you actually need additional income or if you are just going to be spending it over 24 months instead of one month. If you don’t really have a requirement for the additional income, you may want to consider investing the amount for a longer term so that it can produce even more for you.

You could consider putting the money into a tax-free savings account or retirement annuity (RA). By contributing to an RA, you would be reducing your taxable income. This means you could get something more back from the South African Revenue Service next year, depending on what retirement contributions you are already making.

One commodity and one stock and one market call

A year ago I predicted a rally in natural gas stocks. I was early. Wednesday morning, it looks like I’m right on time. President-elect Donald Trump ran on a platform of supporting fossil fuels. America’s best fossil fuel resource is natural gas. It’s cleaner than coal, similarly priced and abundant.

We should expect a major rally in natural gas in coming years. The industry is likely to receive significant fiscal support as enough Democrats in the Senate are likely to agree to compromises on energy policy involving natural gas. I also expect that President Trump appoints friendly Department of Justice and Environmental Protection Agency personnel.

In addition to supportive domestic policy for natural gas, OPEC has been attempting to stabilize oil prices. Oil prices and natural gas prices move largely in tandem. As deepwater oil production declines in the next two to three years, oil will and natural gas prices will rise naturally. If OPEC is successful in instituting production caps, the prices of oil and gas will rise by summer 2017.

The easy buy for intermediate-term investors is the First Trust ISE-Revere Natural Gas ETF FCG, +2.85% The ETF is still down over 75% from its 2014 high. In addition, the index the fund tracks has been largely reconstituted with healthy companies as the bankrupt firms were jettisoned.

Look at the base that FCG has been putting in this year. The consolidation pattern has been trending slightly higher and in a narrower path. It is set to break out. When that breakout occurs, it could move much higher.

Kirk Spano

Fifth Third Bancorp

Since summer, financial institutions — and specifically banks — have started to turn around in hope of higher rates from the Fed.

Specifically, you can see how Fifth Third Bank FITB, +6.00%  has a plethora of trend action that occurred between June and September. There were short-term buy signals that occurred in July as the shorter-term, five-day moving average (DMA) crossed north of the three slower trend indicators. Intermediate trends followed and then we saw the 252-day moving average began sloping up in mid-August, confirming the long-term uptrend.

While there’s a good chance we may see a new Federal Reserve Chairman in the near future, both long and short-term Treasurys have been trending upward since summer as well, which is no coincidence when comparing those yields to the growth in bank stocks. I like Fifth Third here with coming higher rates acting as tailwind for future price movement.

Adam Koos

Will there be a year-end rally?

Although what you’ll do matters in the long term, Wall Street is shortsighted and will soon revert back to what is most important to them, and that is making money today.

Wall Street wants this market to move higher. They have been looking for reasons for the market to move higher, and one thing is very clear.

If you peel back the layers, Wall Street can actually find something to embrace in Donald Trump. He is pro-business, he supports lower taxes, he is pro-jobs and pro-growth, and typically, Wall Street embraces this mentality. The only difference here is that Wall Street has been used to getting things for free, fabricated growth. That’s probably not going to continue over time, but for the moment, there is nothing Donald Trump can do to stop the inflow of fabricated demand that is set to continue from this point through March of next year.

I am referencing the stimulus program of the European Central Bank (ECB). The monies are still flowing, and Trump’s pro-business side will probably have him working against further stimulus, meaning Wall Street is very likely to begin to look at Donald trump in a very different light.

Loan system look like under President Trump

After months of reading the tea leaves, we will soon find out what a President Donald Trump will mean for families trying to afford college and borrowers coping with student loans.

But for the moment, that future remains uncertain. During the campaign, Trump criticized the cost of college and acknowledged the struggles that many student loan borrowers face, but offered few concrete policy proposals for addressing those challenges.

“If we woke up this morning and Hillary Clinton won, we had a very clear idea of her priorities on higher education, on college affordability, on student debt,” said Mark Huelsman, a senior policy analyst at Demos, a left-leaning think tank. “We could debate the merits of them, but it was a policy debate,” said Huelsman who authored an influential white paper laying out a proposal for debt-free college. “We’re waking up this morning and we do not know what a Trump administration would do in terms of existing higher education regulations,” he added.

The Republican nominee did provide a few hints on the campaign trail about the changes he would make to the student loan system. During a speech last month, Trump said he would cap federal student loan payments at 12.5% of borrowers’ income for a maximum of 15 years, a proposal that’s arguably more generous than the current system of several plans that federal student loan borrowers can use to manage their payments, according to Jason Delisle, a resident fellow at the American Enterprise Institute, a right-leaning think tank.

That proposal, perhaps the most concrete Trump has offered on the issue of student loans, may have a shot at becoming reality, said Robert Kelchen, a professor higher education at Seton Hall University. Simplifying the system of income-driven repayment programs is a proposal that has bipartisan support, he said. Even Clinton included simplifying the federal student loan repayment system as a plank under her college affordability plan.

Kelchen said he will be watching who Trump appoints to the Department of Education, particularly in the position of undersecretary of education, which oversees higher education. Higher education policy “is something that Trump might be willing to delegate to his staff at the department,” Kelchen said. “They might put some more details on the skeleton of the income based repayment plan that he announced last month.”