22 May 2014 iTrade Fantasy League Announcement
Gerhard Lampen, the head of Sanlam iTrade, consults regularly with the Director of Investments for Sanlam Private Investments, Alwyn van der Merwe, regarding the timing of investing the R1m of the Fantasy League Portfolio. There are major risks for us if the portfolio makes a loss by the end of the investment period, November – we will have to pay the loss and there will be no prize money to win.
We were of the opinion that the JSE was too expensive and the downside risk was too big on 1 April to invest. On 1 April the market (JSE All Share Index) was already up 4% for the year and up a massive 26% in only 10 months since June, more than 30% annualised. Earnings growth was a lot lower which meant the P/E ratio increased to very overbought levels, see graph (also see the article explaining P/E ratios). At a P/E ratio of more than 17 it was already more than one standard deviation above the mean. It means that the JSE was very expensive, even more expensive than in 2007 before the crash. We also had the uncertainty of the elections and the potential effects of instability caused by the Russian invasion of Ukraine.
We decided that we can only invest if the JSE retracts back to a more palatable P/E ratio because of the short term of the investment period, up to November only. Since then the JSE continued to advance and the P/E ratio is now at 19. With our economic growth faltering to only 2% to 2.5%, it will be unrealistic to expect the average earnings of companies to grow by more than 10% to 15% this year. This makes the P/E ratio unsustainable.
Because we cannot continue to delay and with November drawing ever closer, we have decided that the investment will not be made this year. We apologise to those who voted already, but we trust you will understand our reasons. Having said that, we will launch two exciting new competitions for you, with the first being launched today (The Big 5 Quiz) where you can win a R5,000 trading account! Watch our social media platforms for future competition announcements.
Thank you for your Fantasy League support and this is not the end, it will be back again soon!