NFB FINANCIAL UPDATE Volume61 Mar2012
FROM THE CEO’s DESK
C
alamity having been avoided in Europe for the time being, and considering the way forward, I thought it appropriate to consider how opportunity is found where investors' biases overshadow logic. We at NFB continue to scour the markets for anomalies, and whether you are Warren Buffett with a proven record of buying value and holding, or a Momentum manager who tracks shorter term trends and runs with them, quite happy to buy and sell in weeks or months, you will agree that finding anomalies where for some reason or the other, the security, be it a share, bond or market index, is miss-priced on the cheap side, represents a great investment opportunity. There are caveats to this statement, i.e. "cheap" is always to be seen as a potential opportunity, in the case of the baby being let out with the bathwater, but certainly not in the case of a share where “cheap” is just a point on the way to de-listing or insolvency! Many examples of “cheap” have been seen over the last few years and an example of these that still exists today, involves, amongst others, quite a few South African banks and large corporates who borrow both domestically and abroad. Examples are the major five banks, a few of the largest assurers and corporates such as Anglos and SAB Miller to name a few. Due to the stress in capital markets abroad, the borrowers have had to pay up for the capital they need for projects or to strengthen their Balance Sheets, in the case of banks and other financial institutions. Add to the search for capital the relative obscurity of the S.A. institutional borrowers names and track record, and you end up with the likes of Investec, Standard Bank, Old Mutual, Anglos et al, borrowing at very attractive premiums to what is reasonable. So, what this means is that we are investigating these opportunities for potential foreign investment. We do this in two ways. The first is as a total return option where the investor doesn't need income or is simply comfortable to just accept the return. The second, whilst being a little more complicated, is where the bond, issued by the borrowers listed above, provides us with a coupon. This coupon is an interest payment paid twice annually (or sometimes more frequently) and this is deployed into a more
aggressive growth oriented portfolio, selected and managed by NFB's stock broking partners in London. A further option is the creation of what we call a tranche. This would involve us using one of these bonds to provide a guaranteed outcome, on top of which we purchase positive participation in a very liquid global index, such as the S&P 500, the Dow or similar. This approach leads one to a guaranteed outcome, five odd years down the track, and obviates the current low or no return environment being experienced by investors in Bank Deposits. Changing focus back to local for the conclusion of this editorial, I thought it appropriate to take a look at NFB's in-house Fund of Funds and recently-introduced Model Portfolios, and how they are stacking up. The danger of comparisons, especially in the investment arena, is that they are done over short term periods where the advertiser has done well. I, therefore, am much more interested in the medium to long term, where performance and risk mitigation play out and influence long term results. In the case of both our Cautious and Balanced Funds, I am delighted to report sustained superior returns and, very importantly, whilst taking less risk than our peers. We will shortly have a five year track record for these funds. This, in an industry where reporting is critical, represents the true coming of age of the NFB funds. We will be taking on the giants of the industry and look forward, through the development of our own in-house solutions, together with a close and intimate understanding of client needs and portfolio makeup, to delivering market leading results for many years to come. This industry is all about scale. This term means "How much money do you have?". I would like to thank the advisors and our clients who have supported these solutions, as together we have built up very large assets and accordingly have allowed our asset management team the ability to wage an ongoing sortie to reduce excessive fees, which simply means better medium and long term returns to the Model Portfolios and, in turn, us as investors. Mike Estment, BA CFP® CEO, NFB Financial Services Group
IN THIS ISSUE From the CEO’s desk Undressed, a retirement annuity proves attractive Life cover premium patterns
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