Insights, Updates and News

Q3, 2014 Letter to investors

By Nic Andrew, Head of Nedgroup Investments

Dear valued investor

If a Martian arrived on earth, opened the newspaper to the business section and looked at the financial indicators, I have no doubt that he or she would jump to the conclusion that the world was in an exceptionally stable and prosperous state. Recent returns have been strong, many markets continue to hit new highs and volatility has been at exceptionally low levels.

For us earthlings, we know that these high level indicators mask some significant and serious challenges that remain as a result of the build-up to the financial crisis and the subsequent management of it. Very few know with certainty how the creation of extra-ordinary amounts of liquidity, through quantitative easing and artificially low interest rates, will play out over the long term.

In the meantime, investors seem comfortable to enjoy the ride. We continue to encourage our clients to manage their expectations and that future returns are likely to be lower than those of the past decade.

At the risk of sounding like a stuck record, as the equity markets continue to reach new highs, we caution clients that many of our managers are identifying fewer and fewer attractive opportunities. Should the momentum in markets continue, we anticipate that some of our unit trust portfolios will, despite delivering positive absolute performance, lag their competitors. As always, we measure our unit trust portfolios over full market-cycles and encourage you to do the same.

Navigating oneself through this complexity is not easy. It is for this reason (for most investors) that we advocate delegating both asset allocation and security section decisions to an investment professional. Our range of multi-asset solutions allow investors to do this by offering a simple range with appropriate solutions dependent on your goals and risk appetite. In separate articles, the managers of two of these solutions Omri Thomas; manager of the Nedgroup Investments Opportunity Fund, and Dave Foord; manager of the Nedgroup Investments Stable Fund, provide insight into how they manage these funds and how they currently view the world.

The world is full of change. In South Africa we recently experienced the first hike in interest rates, which took nearly all economists by surprise. Sean Segar provides insight as to how you can position your portfolio in a rising interest rate environment. The beginning of tapering in the US had an immediate impact on emerging markets and currencies, including the South African rand. Andrew Yeadon, from our London office, discusses their views on emerging markets.

Each year in May, thousands of pilgrims make the long trip to Omaha to listen to and learn from two of the greatest investment gurus, Warren Buffet and Charlie Munger, at the AGM of Berkshire Hathaway. Kokkie Kooyman, manager of the Nedgroup Investments Financials Fund is one of the most dedicated pilgrims having attended for the past fifteen years. He shares some of his thoughts.

As always, thank you for the tremendous support. We are proud of the excellent long-term returns our range has delivered to our clients. We are acutely aware that that is history and continue to commit all our resources to ensuring that we keep delivering on our promise.

Happy long-term investing

Nic Andrew

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