Q4, 2013 Letter to investors
Despite our previous warnings that investors should not expect returns to stay as strong as they have been recently, the JSE All Share Index continues to reach new highs and reward investors handsomely. During the past quarter, the market reacted significantly to the Fed’s announcement that it may begin tapering (reducing the amount of bonds it purchases) in the latter part of this year. The initial reaction was pronounced as investors feared potential interest rate increases and aggressively sold bonds, particularly those of emerging markets. This has negatively impacted emerging market currencies (including the Rand) as well as bond and property returns. It also provides some insight as to how investors may react when the inevitable end to the Fed purchasing happens.
In this newsletter, we address a number of issues that have been in recent headlines. Whilst investing in credit (bonds of corporates) is well established globally, it is a relatively new asset class in South Africa. An integral aspect of the asset class is attempting to balance the appeal of the higher interest rate against the potential risk of default (the borrower not being able to pay you back). South African credit investors faced their first major default when the First Strut Group imploded in June. Whilst none of our funds had any exposure, Rashaad Tayob, manager of the Nedgroup Investments Flexible Fund, looks at the default and what lessons can be learnt.
A high level analysis of the most recent industry flows clearly shows that investors and advisors have favoured asset allocation funds and particularly low equity funds (where the maximum equity allocation is 40%). Typically these funds are Regulation 28 compliant, invest across the asset class and geographical spectrum, and allow the investment manager a reasonable amount of flexibility to implement their best view. Our fund in this sector, the Nedgroup Investments Stable Fund, has performed exceptionally since its inception almost six years ago and has attracted material inflows. William Fraser of Foord Asset Management manages the fund and discusses how they are investing clients’ monies.
We have written previously of the significant and potentially game-changing regulation changes that are imminent. National Treasury recently produced their final paper on retirement costs. We summarise the findings and consider the implications for investors and the industry.
Sports scientist Dr Ross Tucker is a guest contributor this month and has written about the small margins that differentiate good athletes from excellent ones. His article concludes that excellence is a result of both natural ability and a systematic commitment for marginal improvement. We believe this applies in the world of investments too and Matthew de Wet explores this in more detail in his article.
In the most recent Plexus rankings (June 2013), Nedgroup Investments was once again amongst the top three managers in the country. This award independently assesses our overall range on a risk adjusted basis over three and five-year periods, so is a reasonable representation of the experience of our clients. We are delighted with this recognition and will continue to strive for long-term performance that meets our clients’ expectations.
We have made a number of changes to our website to make it easier to do business with us. If you have not yet registered online at www.nedgroupinvestments.co.za, I encourage you to do so. Registering online is a quick and easy process and will make managing your investments far simpler in future.
Many thanks for your continued support; as always, it is much appreciated.