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Transcript of Liberty2012
Liberty’s Investments
Senate Group
Juan Jacobs
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Agenda1. Excelsior Property Update
2. Retirement Positioning
3. Flexible Investment Plan Focus
4. Budget Overview
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2011 REVIEW OF THE LIBERTY BALANCED PROPERTY PORTFOLIO
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Return Components of 2011
0
5
10
15
20
25
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Capital
Income
Total
Capital: 3.62%Income: 6.89%Total: 10.51%
Direct Property: 10.74%Non Direct Property: 8.91%
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LBPP vs. CPI
0.00
5.00
10.00
15.00
20.00
25.00
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
CPI AVERAGE FOR YEAR LIBERTY PROPERTIES GROSS RETURN
Yr CPI Average Return
2006 4.63 19.952007 7.08 20.602008 11.30 14.932009 6.30 11.492010 4.29 11.912011 4.98 10.51
Reflection of consistent, inflation beating returns over the long term
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Asset Class Performance 2011
South Africa %Equities (ALSI) 2.6
Bonds (ALBI) 8.8
Cash 5.5
Listed Property (SAPY) 8.9
LBPP 10.5
International Property Total Returns %Americas 7.8
Asia -17.0
Europe -11.3
Oceania -1.3
Source: Inet, Stanlib, Avior Research
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Prospects for 2012
§ Interim bonus 8.0% gross
§ Economic recovery still fragile
§ Cash drag
§ Net income reasonably certain
§ Growth on net income constrained due to high escalating operating costs
§ Focus to reduce costs in the portfolio by use of technology and enforce more discipline in cost management
§ Risky to forecast capital movement
§ No big developments being completed for 2012 and re rating on assets are unlikely
§ Embarked on an investigative process of acquiring / developing assets not currently in the portfolio
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FUND COMPOSITION AND ATTRIBUTES
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Fund Composition as at January 2012
65%10%
11%
1%5% 8%
Retail
Offices
Hotels
Other Fixed Property
Listed Property and property linked assets
Money Market/ Cash Type Instruments
5%
78%
8%9%
Eastern Cape Gauteng
Kwa-Zulu Natal Western Cape
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Sandton City Extension and Refurbishment
§ 30 000 m² retail extension completed and opened for trading in early November 2011
§ Many International Brands launching for the first time in Africa at Sandton City
§ 900 new parking bays
§ Enabling work for subsequent phases
§ Due to the construction industry slump, new tenders have been granted in favour of Liberty Properties
§ Refurbishment plans underway for Sandton Offices and Parking deck
§ 100% let
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§ Likely tenants:
§ Toys R Us
§ Wetherleys
§ Builders warehouse
§ Hi Fi Corporation
§ Coricraft
§ Furncity
§ Golfers Club
§ Pre- let
§ 80% pre-let conditions need to be achieved before commencing development
Liberty Midlands Mall Lifestyle Centre
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Retirement Positioning
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Retirement Provision – Looking at it differently
Why is an RA one of the best ever products for Retirement?
• Inaccessibility
• Protect your investment from temptation
• Protect it from creditors
• Portability
• Not dependent on employer or employer benefits
• Tax Benefits
o SARS is currently paying up to 40% of contributions
o While invested, the returns are tax free.
o Withdrawals on lump sums enjoy preferential tax treatment.
o Annuity income post retirement exempt § Tax Threshold R59 750p.a. < 65, R93 150 p.a. < 75, R104 150 ≥ 75
o When you die, RAs fall outside of the estate duty calculation.13
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Why Liberty?
• Competitive RIY – not reliant on “bells and whistles”
• Wide range of portfolio guarantees (from conservative to aggressive)
• Higher of death guarantee
• Retrenchment premium waiver unique to Liberty Investments
• Disability Premium Waiver
• Maternity premium holiday on retirement builder
• On RA’s there is a premium holiday benefit
• The policy bonus is not performance related or fund specific (applies to paid up policies)
• Cost neutral commission structure
• Reducing management fee
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A client who wants the flexibility to address different needs in one investment
A client who wants the benefit of compounding growth
A client who wants funds to be paid out quickly to beneficiaries should they pass on
A client who wants low ongoing fees
A client who might need multiple access to funds
A client who likes our higher of death guarantee
A client who may need guaranteed portfolios
A client who would like a lump sum, free of additional tax (if original owner), at the end of five years
A client who requires emergency access to funds
A client who does not want to incur any early termination charges
Who will benefit from the Flexible Investment Plan?
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What is Bundling?
Up to 10 policiesOne policy document
– Separate schedule per policyEach policy independent:
– Initial consideration– Upfront Advisory fees – Ongoing Commission– Portfolios– Lives assured– Servicing requests– Cessions– Surrenders/ Advances
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Single Premium Endowment Comparison: Excelsior Moderate & LA Excelsior Moderate (Inv Builder) with 3% IAF
Investment Plan Early
termination charges apply
(1st 4 years)
Flexible Investment
Plan
Single Premium
Investment Builder
Multi Acc Inv Plan
Potential Secondary CGT
Multi Acc Inv Plan
Potential Secondary CGT
Consideration R 1,000,000 R 1,000,000 R 1,000,000 R 1,000,000 R 1,000,000
Net Allocation R 995,739 R 965,800 R 965,800 R 965,800 R 965,800
Allocation Enhancement +R 29,940 R 0 R 0 R 0 R 0
Initial advisory fee (plus VAT) R 34,200 R 34,200 R 34,200 R 34,200 R 34,200
Management fee 1.92% pa
Initially 1.23% pa reducing based on growth
achieved
1.96%p.a. in 1st 5yrs, and
reduces thereafter
1.92% pa 1.2% pa
RIY at Year 5 2.2% 2.1% 2.3% 2.8% 2.1%
RIY at Year 10 2.1% 1.7% 2.0% 2.5% 1.7%
Reduced Fees on these funds if selected on MAIP:
Income Fund, Bond Fund, High Yield & Money Market
NB!! Be cautious about selecting Money Market as client will compare to bank where no fees are levied and there is still the impact of secondary CGT
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Guaranteed PortfoliosGrowth Investment Series
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Growth Investment SeriesCapital (C) Guarantee Option
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Growth Investment SeriesCapital Plus (C+) Guarantee Option
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ConsistencyInvestors are more likely to achieve their objectives if portfolios are structured to deliver consistent performance.
DiversificationPortfolios using multiple managers with complementary approaches diversify risk and have the ability to generate more
consistent results — therefore greater potential success for the investor.
Process Successful investment results from an ongoing, disciplined process that requires regular monitoring and periodic corrective
action as conditions change through cycles.
Time à
Rank
1st Quartile
4th Quartile
Single Manager volatility
More consistent Multi Manager returns
The case for Multi-Manager
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Excelsior Multi-Manager Risk Profiled Portfolios
Equity Building Block Allocation Property
Building Block Allocation Bond Building Block Allocation Cash Building
Block Allocation
Afena Equity 10.5% Cash 1.4% Cash 1.3% Taquanta 30.5%AG Equity 14.4% Catalyst 34.3% Cadiz 29.7% OMIGSA 30.4%Cash 0.4% Prudential 20.0% Coronation 30.7% Prescient 39.1%Coron. Equity 20.2% STANLIB 44.3% Prescient 38.3%Foord Equity 15.0%Element Earth 10.1%Kagiso 14.8%Oasis Equity 14.6%
0%10%20%30%40%50%60%70%80%90%
100%
Conservative ModerateConservative
Moderate Moderate Aggressive Aggressive
Equity Excluding Property Listed Property Bonds Cash
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The hidden cost of going external
PortfolioProduct
Management Fee*
GuaranteeFee
Ongoing Commission
Recovery Fee
Foreign Currency
Management Fee
Asset Manager Fee
Total Ongoing Fees
Excelsior Multi-Manager
Aggressive 1.23% p.a. n/a n/a n/a 0.60% p.a.
1.83% p.a.
No additional performance fees
levied
Fund Xternal 1.23% p.a. n/a n/a n/a 1.71% p.a.
(Fee at benchmark)
Max 3.42% p.a.
2.94% p.a.
Max 4.65% p.a.
Management fee = effective tiered management fee at inception based on a R1m investment with 2+ policies in the bundle and a 3% initial advisory fee (excl. VAT)Source :Liberty
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Reduction in Yield versus Total Expense Ratio
Reduction in Yield (RIY) Total Expense Ratio (TER)
High Figure = relatively expensive.
Low Figure = relatively cost effective.
High vs. Low Ratio not necessarily expensive or cheap!
Actively managed funds have higher figures thanpassively managed funds – performance may be betterthus outweighing costs!
Large funds have economies of scale thus TERrelatively low but performance may be poor relative topeers.
Looks forward over policy term. Historic view – calculates cost over previous year thus not an indication of future costs.
Calculated over the term of the policy. Only calculated over 1 year.
All costs to policyholder including upfront costs included in calculation.
Performance fee not included. Liberty includes fee at benchmark as per CPQ.
Not all costs included e.g. Upfront costs and advisory fees not included, however most recent performance fees included in ratio.
Simple, easy to understand comparison tool. Fairly simple figure but must be used with caution as a comparison tool.
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How to Calculate a LISP’s “Reduction in Yield”
Reduction in Yield vs. Total Expense RatioConverting Total Expenses on a LISP quote to a FIVE YEAR RIY
Example based on above LISP Total Weighted Fee*:
Take 1.90% p.a. + (Initial advisory fee of 3% + Vat = 3.42% / 4 )=1.9% p.a. + (3.42% / 4) p.a.=1.9% p.a. + 0.86% p.a.
= Approximate RIY of 2.76% p.a. at YEAR 5 on LISP
(True RIY is 2.82% p.a.)
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Budget 2012
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BUDGET 2012
“Our development requires every one of us to ask –
what can I do for my country, my people, our future!”
Pravin Gordhan, Budget Speech, 22 February 2012
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Interest and Foreign Dividend Exemption
2012 2013
Interest income under 65s R22 800 Unchanged Interest income over 65s R33 000 Unchanged
Foreign dividends R3 700 Unchanged
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Dividend Withholding Tax
• STC to be replaced by a Dividend Withholding Tax –Effective date: 1 April 2012
• DWT rate – 15% (SA corporates and retirement funds are exempt)
• DWT will bring SA in line with international best practice and is expected to make SA more investor-friendly
• Corporate tax rate in SA is now simplified at a maximum of 28%
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Capital Gains Tax
2012 2013Inclusion Rates:Individuals and Special Trusts 25% 33.3%Companies and Other Trusts 50% 66.6%Effective Rates:Effective rate (individuals & ST) 10% max 13.3% max Companies 14% 18.65%Trusts 20% 26.64%Exclusions:Individuals (annual) R20 000 R30 000 Deceased estates R200 000 R300 000 Primary Residence R1.5m R2m
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Medical Tax Credit
• As from 1 March 2012 medical contributions will be subject to a tax credit as opposed to a tax deduction
• The monthly tax credit is R216 for the member and spouse and, R144 for each dependent
• Definition of dependent has been extended, now includes: spouse, child of a spouse, immediate family members for whom you are liable
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Medical Tax Credit
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Medical Expenses Deductions – S.18
Disabled persons Under 65’s The medical deduction comprises: The medical deduction comprises
the amount by which the aggregate of….
Medical scheme contributions Medical scheme contributions exceeding (4 x medical scheme exceeding (4 x medical schemecredits) credits)
+ +
All other medical expenditure All other medical expenditure
…..exceeds 7.5% of taxable income
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Social Security
2012 2013
Disability and Old Age Grants R1 140 R1 200
Old Age Grants – over 75 R1 160 R1 220
Child Support Grants R 265 R 280
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Proposal
• Tax-preferred savings and investment accounts – Government intends to introduce tax-preferred savings
and investment vehicles by April 2014. Returns generated in these savings products, such as interest, capital gains and dividends will be tax exempt. Withdrawals from such vehicles will also be tax exempt. Aggregate annual contributions will be limited to R30 000, with a lifetime limit of R500 000.
– A discussion document will be published by May 2012, and it remains to be seen whether private institutions will be able to offer such vehicles to the public.
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Questions
Questions?
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Thank you !
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In formulating the information in this document, Liberty Life has taken due care to ensure that the views and opinions are based on information which is relevant and accurate. While every care has been taken before opinions and views are given, no representation, warranty or undertaking (expressed or implied) is given and no responsibility or liability is accepted by Liberty Life as to the accuracy of the information contained herein. Any recommendations made must take into account your clients specific needs and personal circumstances. Any legal, technical or product information contained in this document is not to be construed as advice by Liberty Life.
Liberty Group Limited – an Authorised Financial Services Provider in terms of FAIS Act (license no. 2409).
Disclaimer
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