QUARTERLY REPORT NEDGROUP INVESTMENTS CORE GUARDED FUND

Transcription

1 QUARTERLY REPORT NEDGROUP INVESTMENTS CORE GUARDED FUND

2 Has my investment grown? Over the past three months your investment has experienced a drop-in value due to poor market returns. For every R invested, the fund value was down by R150 (-1.5%). Although recent market returns were poor, in the long run investors have been rewarded for taking on risk, as you can see in the table below. For every R invested in the Core Guarded Fund three years ago, you would have R at the 31 st of December This is only marginally worse than the R you would have achieved had you invested your money in bank deposits (cash) over the same period. The green circle below, highlights the recent market dip, which helps to contextualise the poor returns experienced in the last few months of Value of R10,000 investment in Core Guarded Fund versus Cash 1 3 Months 1 Year 3 Years 5 Years 7 Years Inception 29 January 2010 Growth of fund (after fees) (Growth in %) R % R % R % p.a. R % p.a. R % p.a. R % p.a. Growth of cash (Growth in %) R % R % R % p.a. R % p.a. R % p.a. R % p.a. Fund Return versus Cash 1 for 3 years ending Dec 2018 R R R Core Guarded B Cash Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Over most 3-year periods, Core Guarded has done significantly better than cash. However, it is to be expected that occasionally there will be periods where the fund does not beat cash over 3 years. Over the long term 2, a portfolio such as Core Guarded would have delivered higher return than cash around 82% of the time over any 3-year period. 1. Weused the STeFI call deposit rate for cash returns 2. Based on SA market returns from 1960 to 2018 (source Firer 2006) using the same long-term equity allocation and fees. nedgroupinvestments.com Page 2

3 Why have returns been so poor over the last few months? The mood of financial markets changed dramatically over the fourth quarter, with volatility spiking and risk assets (equity and property) sharply underperforming safe havens (bonds and cash). Both global and local risk assets took a knock in the last quarter of Global equity led the way, falling 12.7% (in US Dollars), followed by global property which was down 5.5% (in US Dollars). Thereafter, both local equity and local property were down 4% over the quarter. The Rand/US Dollar exchange rate was relatively flat over the quarter, providing little protection against poor global returns. Listed property also had a tough year trading down -25.2% for Stock-specific concerns linked to the largest shares (Fortress, Resilient, Intu, Nepi, Hyprop, etc.) were the primary driver of poor returns over the period, especially the first half of the year. The poor economic climate has started to reflect in corporate financial results as the year progressed, with demand for property rentals declining. Why is taking investment risk worth it over the long run? Investors face a myriad of risks such as inflation risk, risk of capital loss, currency risk, country risk, interest rate risk etc. With markets performing so poorly of late, many investors are questioning whether it is worth taking these risks or if they should rather retreat and simply put their money in the bank. Although staying out the markets may give you a sense of comfort in the short term, over time, you will soon experience the slow but powerful erosion of inflation. At a 5% inflation rate, in 14 years the same Rand value will be worth half and in 28 years it will be worth only a quarter of what it was worth inflation. To put this into perspective, historically interest on bank deposits would have just kept pace with inflation but you would not have seen any growth in purchasing power. Therefore, the only assets that have the potential to truly grow your wealth are equity and property. Although equity and property investments can experience significant ups and downs in the short run, the longer your time horizon the less the investment risk. In fact, over longer investment periods you should be compensated for the risk taken and see your investment double every 9 years on average assuming you make no additional contributions. This means that your investment should stay ahead of inflation which doubles, on average, every 14 years. However, to answer the question whether taking investment risk is worth it, you need to know when you need to access your money. This fund is not suitable for investors needing to access their money in the next year or two as there is a possibility that your investment may be worth less than your original investment if you invest for periods less than 3 years. This is due to its moderate exposure to shares (42% of the portfolio). This fund is designed for investment over periods of 3 years and longer, where you are likely to be compensated for taking investment risk. nedgroupinvestments.com Page 3

4 How does the Core Guarded Fund help me achieve my investment goals? The Total Investment Charges of the Core Guarded Fund are significantly less than the average charges in similar balanced funds. The difference in charges is over 1% per annum, which means that you save around R115 on a R investment per annum. Over a 10-year period, this compounds to nearly R2 200 of total costs saved on a R investment. Therefore, in Core Guarded your investments work harder so that you retain more of the growth instead of paying it away in fees. The Core Guarded Fund is also very well Guarded as it holds over 175 South African shares and nearly in offshore shares. It also holds over 200 South African and nearly offshore interest earning instruments, meaning that you don t have all your eggs in one basket. In the event of any one particular company failing, your risk is mitigated by having only small amounts invested in any one instrument. The largest individual investment in your portfolio is Naspers which consists of R506 for every R invested. Is the market outlook for 2019 better than last year? Investors always ask the question: what action should I take based on market predictions? Should I change my investment strategy? The short answer to both questions is to do nothing unless your circumstances has changed dramatically. Trying to time the market is very tricky. In fact, if you just missed the top 5 days over a period of 10 years in South African shares, your growth on R drops from R to R (or 5.2% per annum less). This means you missed out on R6 600 of growth for every R invested! The other problem is that the days with the best returns and the worst returns typically occur within the same periods. Therefore, in trying to avoid the worst days, you can unintentionally also miss the best days. The outlook for SA has improved following the appointment of Cyril Ramaphosa as the new President, but there are still significant fault lines. These include our stretched fiscal position, the poor state of our SOEs and structurally embedded social and economic challenges including high unemployment, persistent inequality, poor educational outcomes and labour productivity. The offshore allocation in the Core Guarded Fund of 25.5% should assist in diversifying against these risks. On the global front, political and economic uncertainty is likely to persist in We take comfort though from the improved valuation levels, and more normalised US interest rates (2.5% now), after a period of abnormally low interest rates. These ultimately serve as potential shock absorbers to risk events. Risks include a potential infrastructure slowdown in China, and the effect that this could have on emerging markets as well as how the trade war is going to evolve and the effect that this could have on globalisation and company profits. There is a significant amount of previous quantitative easing by central banks around the world that will have to be rolled back over the next few years, which could have far reaching consequences for global markets. As in the past, there are likely to be positive and negative surprises in 2019 which will have an impact on financial markets. The Core Guarded Fund, which is broadly Guarded across and within asset classes, should be robust in a range of different scenarios. nedgroupinvestments.com Page 4

5 Disclaimer Nedgroup Collective Investments (RF) Proprietary Limited is the company that is authorised in terms of the Collective Investment Schemes Control Act to administer the Nedgroup Investments unit trust portfolios. Unit trusts are generally medium to long term investments. The value of your investment may go down as well as up. Past performance is not necessarily a guide to future performance. Nedgroup Investments does not guarantee the performance of your investment and even if forecasts about the expected future performance are included you will carry the investment and market risk, which includes the possibility of losing capital. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. Certain unit trust funds may be subject to currency fluctuations due to its international exposure. Nedgroup Investments has the right to close unit trust funds to new investors in order to manage it more efficiently. A schedule of fees and charges and details of our awards are available on request from Nedgroup Investments. A fund of funds may only invest in other unit trust funds, that levy their own charges, which could result in a higher fee structure. Nedgroup Investment Advisors (Pty) Ltd (the Investment Manager ) an authorised as a financial services provider under the Financial Advisory and Intermediary Services Act (FSP No. 1652), is the appointed Investment Manager of the Management Company. Certain Nedgroup Investments unit trust portfolios include international assets, whereby a change in the exchange rates may cause the value of those investments to rise and fall. Excessive withdrawals from the portfolio may place the portfolio under liquidity pressures and that in such circumstances a process of ring-fencing of withdrawal instructions and managed pay-outs over time may be followed. Please note that Nedgroup Collective Investments (RF) Proprietary Limited is not authorised to and does not provide financial advice. This presentation is of a general nature and intended for information purposes only. It is not intended to address the circumstances of any investor and cannot be relied on as legal, tax or financial advice, either express or implied. Whilst we have taken all reasonable steps to ensure that the information in this document is accurate and current on an ongoing basis, Nedgroup Investments shall accept no responsibility or liability for any inaccuracies, errors or omissions relating to the information and topics covered in this presentation. Nedgroup Collective Investments (RF) Proprietary Limited is a member of the Association for Savings & Investment SA (ASISA). nedgroupinvestments.com Page 5