NFB FINANCIAL UPDATE Issue 74 June 2014
FROM THE CEO’s DESK
W
ell now. The ANC didn't lose too much ground, Helen's team progressed markedly, Juju preyed rather successfully on the downtrodden and Mamphele's bunch, showing so much early promise, paid the price for a failed merger! The elections have come and almost gone. Gladly we are through the horrid overt aggression and political gamesmanship, which typifies the pre-election space. We have an entrenched ANC, which can hopefully focus on its surprisingly pro-business agenda, agreed to at the highest level. As I noted recently, the departure from a very close alliance, along with the concomitant need to appease Cosatu's leadership and socialistic agenda, allows the government to tackle the next hurdle in 2019 with gusto, having realized the need to grow the economy, create jobs, meet the broad populations expectations and ensure they contain further losses to their political right and left. Hopefully they will deal with internal disciplinary and
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Mike Estment CFP professional BA / CEO - NFB Financial Services Group
financial services group
leadership issues and if this happens, we might be surprised with the vote of confidence financial markets, ratings agencies and investors afford Mzansi! Certainly the early signs in markets following almost final results from the regional and national polls are positive. Politics is a funny game. The impact of political decisions, sometimes more like experiments, can be materially constructive or quite the opposite. I certainly hope for all South Africans, that the ANC hierarchy accept the nations vote of confidence and make bold and brave changes which free the Rainbow Nation to re-assume its position as Africa's leading country, recently surrendered to Nigeria. The resourcefulness, patriotism, patience and belief, which our nation is richly endowed with, needs harvesting. Leadership is critical as the catalyst in our ongoing democracy. Here's hoping! So…on to markets, investments, currencies and tax. The JSE remains at levels never seen before. This, in our opinion, remains pretty frothy. I don't know how many of our readers have enjoyed a good body surf. Those that have will know the feeling of being “dumped”. You end up in something less than water, but not readily breathable. It doesn't faze the experienced surfer, but for those who have short memories, or haven't experienced this, it is scary and might result in us getting out of the water! Like investment markets, and more particularly equity markets, bumps and dumps are fairly regular occurrences. If you prefer less volatility and fewer unnerving corrections, perhaps a chat with your advisors is called for. For the seasoned and long term committed investors, we would, as always, maintain appropriate exposure to equity markets, paying attention to the fact that certain shares and sectors have over-delivered whilst others offer better value. A critical determinant of equity exposure should always be the likely need for an investor to have to liquidate (typically this happens at the perfectly wrong time according to Murphy's Law) either to meet a capital or income requirement. Shares mostly pay dividends and these can provide portfolios with required levels of tax efficient income. By rearranging stock
selection, one can reasonably easily enhance income, without compromising capital (though it should be kept in mind that potential capital returns may subsequently differ). By acquiring a portfolio of shares, which pay higher dividends, such as property stocks, preference shares and some banking and other stocks, one can materially increase the amount of income the portfolio generates. This is similarly possible via unit trust investments, where your advisor can tilt your portfolio towards funds which focus more on income and dividend generation, or by using NFB's own range of professionally managed Model Portfolios, which blend top funds to meet different client needs. So the idea here is to maintain long term exposure to the best performing, inflation beating asset class, but for those less inclined to short or even medium term “loss”, it allows an alternative. NFB remain focused on providing leading edge advice and service in an area of the economy experiencing significant change and regulation. I thought it appropriate to thank our clients for their patience and support in the important process of completing and meeting these FAIS and FICA requirements. Whilst perhaps unnecessary when dealing with leading and independent businesses like NFB, the experience by less sophisticated investors in the hands of unscrupulous advisors makes these regulations crucial in providing protection, and indeed recourse, should this become necessary. Thanks to you for bearing with us, and thanks to our compliance teams in all of our branches for making these processes as painless as possible. In closing a few words on the rand: “volatile” would sum it up in one word. “Vulnerable” would be another. But in the short term, following a year or so of material weakness, I'd hate to be asked to make a six month forecast. In the medium term, however, given our inclination as an emerging economy to suffer higher aggregate inflation, it is a reasonably safe bet to assume sustained weakness. What this means to us as investors, is that needing to make offshore investments is not really about timing, but rather about time.
fortune favours the well advised