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Were your investments affected by the Steinhoff bloodbath?

Steinhoff has lost millions after accounting irregularities came to light earlier this month. In a case that may well result in charges of fraud, some of the company’s most senior executives could be sent to jail.

The most exposed investors are pensioners, including those who are beneficiaries of the Government Employees’ Pension Fund (GEPF). On March 31, the GEPF, through the Public Investment Corporation, owned about R28bn in Steinhoff International.

However, in a statement issued on December 8, the GEPF made assurances that it could deal with the Steinhoff blow. While it admitted to holding about 10% of the shares of the company, it pointed out that this consisted of only 1% of the total assets of the fund.

“The impact of significant movement in the share price on the GEPF is significant, but manageable,” it said.

It added that the investments of members, pensioners and beneficiaries were safe: “As a defined benefit fund, the movement in the value of individual investments does not affect the benefits to members and pensioners. Therefore, benefits to members and pensioners are safe. While the GEPF is still awaiting further information following investigations, it is inevitable that it and other pension fund managers will change tack to learn from current mistakes.”

The good news is that pension funds have rules around how much exposure they can have to any one company. According to Steven Nathan, CEO of 10X Investments, regulation 28 of the Pension Funds Act sets prudential limits for retirement funds.

“For companies with a market cap above R20bn, the permitted exposure is capped at 15% of the portfolio value.”

Investors with unit trusts could also have a chunk of their investments exposed to Steinhoff, particularly when it comes to the more aggressive funds that have a large portion of their holdings in equities.

“Unit trust regulations limit the exposure per share to 10% of the portfolio value if the market capitalisation is above R2bn, or 120% of that security’s weight in the index; subject to a 20% limit for actively managed funds,” says Nathan.

He admits that 10X investors could have exposure to Steinhoff of between 0.13% (10X Defensive) and 1.20% (10X High Equity).

Allan Gray issued a statement this week saying that its exposure to Steinhoff had been limited. Its funds each had about 0.1% exposure to either Steinhoff shares or preference shares, and this resulted in a loss since purchase of about 0.44% on the Allan Gray Equity Fund, 0.4% on the Allan Gray Balanced Fund and 0.16% on the Allan Gray Stable Fund.

City Press approached Old Mutual and Coronation for comment on their exposures to Steinhoff, but they had not declared them at the time of going to print.

If you’re invested in an aggressive unit trust, it would be wise to check what the fund has been investing in.

Floris Slabbert, chief operations manager at Ecsponent Financial Services, says that the younger you are, the more likely you are to have exposure to the likes of Steinhoff as you would have a bigger chunk of your assets invested in equities. However, those who are about to retire may have taken less of a hit as most managers would’ve divested their assets to less risky asset classes such as bonds.

“Overall, the trustees of the pension fund have to make sure that single party exposure is limited depending on the guidelines of the fund. However, some managers are finding it hard to manage their pension fund assets because of their size.”

For a detailed breakdown of single party exposure – how much of your assets are invested in one particular stock – Slabbert advises you to contact your broker or the company you’ve invested in directly. Ask them what their plan is in terms of shielding your assets from further blows.

SHOULD I BUY STEINHOFF SHARES?

As Steinhoff shares have lost about 90% of their value, some may feel that now is the ideal time to invest in the company.

“If you are a long-term investor and have some diversification, then buy some,” says Slabbert.

“I bought because I’ve got confidence in the board. They have taken drastic steps and want to control it. They appear to have a plan in place and have plans to recover. But it will take a while to recover.”

But Nathan cautions against this.

“We would never recommend that investors buy individual shares. This is tantamount to speculation – putting the investor not only at the mercy of broad market developments, but also stock-specific risks.

“Even during the global financial crisis [2008/09], when the stock market almost halved in value, the average well-diversified multi-asset portfolio would have lost no more than 25%, peak to trough, with a strong prospect of recovery,” Nathan says.

“As we have just seen, an individual stock can lose 90% or more of its value with no reasonable assurance that it will recover all or at least part of this loss.

“Rather than gamble on individual shares, the average investor will be much better off in the long term by simply holding a low-cost and well-diversified portfolio with a level of market risk that is appropriate for their investment time horizon,” he says.

SHOULD I STAY IN EQUITIES OR GET OUT?

While analysts have been warning us about the impending implosion of Bitcoin, one of the most ­
well-known cryptocurrencies, they should have been paying better attention to Steinhoff, which – at the time of writing – has lost about R282bn, hitting junk status in the process.

If asked about the security of Bitcoin or Steinhoff, I’m sure most would have agreed that Steinhoff was a surer bet. The argument would be that Steinhoff is a global retailer, which owns bricks and mortar businesses in the form of Ackermans, Pepco and HiFi Corp, and employs about 130 000 people.

Meanwhile, Bitcoin, which some believe is effectively a pyramid scheme, doesn’t have an international business empire that sells major brands. Ironically, for now at least, investors’ money would have been safer with Bitcoin.

That doesn’t mean that you should be invested in Bitcoin or avoid equities altogether in favour of bonds or cash.

The point I’m making is that Steinhoff, and other listed companies like it, are not always rock-solid investments. It means that, at times, you’ll have to endure shocks such as this, but this is why analysts and advisers always talk about the benefits of diversification, meaning that no matter what your exposure is, some of your investments will do well and others may falter.