NFB FINANCIAL UPDATE Volume48 February 2010
FROM THE CEO’s DESK
A
s the new decade begins, I believe it an appropriate time to reflect on a few things. Firstly, NFB turns 25 years old in April. Many things have happened in this interesting period of time, and many significant corporates have come and gone. I am terribly proud of the continued existence and growth that our business enjoys. We at NFB recognise the role that clients, institutions, the media and the staff of NFB in Johannesburg, East London and Port Elizabeth have played in our success. If one considers the dramatic changes in financial markets and the many institutions, once household brands, such as Trust Bank, Fedsure, Arthur Anderson, Saambou, Santambank to name a few, who are no longer in existence, some the victim of poor trading, others merged and absorbed, NFB can hold its head up high. We remain one of the country's premier investment advisory businesses, but enjoy a healthy respect for the need to remain relevant to the needs of a discerning client base. The next decade will, I believe, deliver some great opportunities, but equally, as many threats. The world will probably change for good and hopefully also for the good! The major developing economies will play a significant role in the prosperity of the world and the way we approach these markets will play an important role in achieving reasonable returns on investments. Interest rates are also likely to track lower inflationary trends, although this will need careful scrutiny as the systemic monetary and fiscal easing that has characterized the world over the last two years, will come back to bite. Carefully managing this will prove the mettle of central bankers, and Mr. Bernanke's skill displayed in orchestrating the “match saving” bailout, will again be tested, when it becomes necessary to tighten the screws on economies in variously fragile recoveries. Accepting that the above is true, we need to navigate our clients, ranging from those in retirement and dependant on income from investment, to the more aggressive savers, and the wealthy individuals and institutional clients, through the current markets, fraught with conflicting opinions, and a blend of fear of a recurrence of recent losses. Diversification has long been a popular adage at NFB. Some would argue that this reflects a lack of conviction. Others readily accept this strategy as
sensible and appropriate. We see no reason to deviate from this approach, whether the investment need be as aggressive as direct equities, or more moderate, where a balance between equity, property, bonds and cash is required, or even for investors set on remaining in cash. In all cases, diversification will probably not (and technically cannot) deliver the top return. However, on a risk-adjusted basis, it makes sense. As one drops down the risk / return spectrum, diversification remains important, changing, however, from the need to blend different shares from the same asset class to blending asset classes. Even in the most cautious portfolios, where cash is king, diversifying by placing funds into different banks, lowers risk. Lastly, these rules of thumb apply equally to local and offshore portfolios. Currently the rand is well placed, firstly as a “developing economy currency”, enjoying a resumption of investor interest from abroad. We are also a resourcebased economy, benefiting from a secondary effect of global fiscal easing, i.e. low cost of borrowing internationally. This will be temporary, and when it reverses, might, as typifies the South African rand, be rather dramatic. Taking advantage of this seasonal strength and using one's foreign allowance is another form of diversification. On a lighter note, one of the world's best investments last year was the Zimbabwean currency. Apparently, the 100 trillion Zimbabwe dollar note, once worth a fraction of a cent, is the largest bank note ever printed. These are now changing hands at the Victoria Falls Hotel and market where collectors are prepared to pay up to R300.00, an amazing premium for a banknote with no intrinsic value. Makes you think, doesn't it? During the coming months, we will be doing a few special things in celebrating our 25th Anniversary. I hope you will join us in celebrating this important event and thank you for your kind patronage. I also look forward, on behalf of our staff and management in the various divisions of NFB, to continuing to provide the excellent advice and service I trust you already receive from us. All the best for 2010.
Mike Estment, CEO
IN THIS ISSUE From The Ceo’s Desk What If The Carry Trade Rebounded? Retirement Annuities. Where Are Yours Invested?
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