2022 began with enormous volatility across markets. Unusually, we saw equities, bonds and most investment types being sold at somewhat material discounts. From the approach taken by the Federal Reserve it became clear that central banks were going to wage war on out of control inflation.

As we predicted late last year, the inflation issue, explained as a temporary blip, was way more systemic and not at all the flash in the pan which would soon abate. The impact of dramatically increasing interest rates is always material. Previously bullish investors become urgent sellers and patient or conservative investors remain on the sidelines whilst mayhem prevails. Human behaviour, whilst often described as sophisticated and advanced is not typical of these times. Quality is disposed of alongside least valuable yet seemingly attractive investments. It is in these times that investors who have been patient or cautious can initiate investments which will deliver significant returns into the future.

We are living in interesting times. Conflict, inflation, pandemics, interest rates, politics and supply chains amongst other big moving parts combine to confuse markets and investors alike.

"We remain steadfast in our belief that diversity across markets, assets and currencies remains the most robust and relevant approach to portfolio deployment."

Good companies pay dividends, strong banks pay regular income and from time to time, those in need of income are rewarded with rather exceptional guaranteed rates which come from bond markets being at cyclical highs.

South Africa remains a unique and enigmatic market. Probably one of the nicest places around the world to live in, it remains very tricky politically and economically to be fully invested in.

Blending a portfolio to provide investors with sufficient secure income and complementing this with global growth facing investments has and continues to make a lot of sense. Logic tells us that one should invest in the currency in which you live. In our instance this does not hold true and looking at long term trends (trends are your friends), the Rand will continue on a volatile but weaker path.

Taking large amounts of capital abroad has us thinking and advising tactically. What this means is that one isn't forced to exit in one fell swoop. We can manage larger flows over time, averaging out the exchange rates. This is especially true when significant short-term weakness is experienced, as in recent months.

On the contrary, for younger investors, or those taking out regular, sometimes fairly large amounts, we tend to recommend sending funds out at prevailing rates, avoiding trying the impossible task of timing the market.

Our behaviour has become a major study at university and organisations around the world. Called behavioural finance, it references human biases which include the fear of missing out, loss and anchoring on the most recent occurrence as a harbinger of the future. Whilst sometimes these thoughts or fears materialise, they are often wrong and lead to knee jerk reactions and unfortunate and costly consequences. World renowned for the remarkable investment results over extended time periods, Berkshire Hathaway and their two key gurus have opined that when everyone else is panicking it is time to buy and when everybody else is displaying greed it is time to sell. Never have truer words been said.

Recently, the world of retirement cash flow funding has been positively impacted by a few developments. Firstly, institutions are developing guaranteed income solutions which complement growth-oriented parts of the portfolio. These can be for either compulsory (pension) funds or normal investments which we term discretionary funds. What makes this particularly interesting is the current heightened rates on offer from the bond market. We would encourage you to reach out to our advisory team and to investigate this opportunity which might suit your circumstances.

Finally, I thought it appropriate to mention structured products. For the correct investor, seeking equity like returns but with less of a tolerance to risk, these investments which we offer from time to time might be suitable. Structured products provide a blend of inflation beating probabilities with varying degrees of capital guarantee or partial protection. Again, I would suggest a conversation with our advisory team to see if this investment and its characteristics suit your needs and risk profile.

NFB is remarkably lucky. 37 years young, we enjoy remarkable relationships with clients, our staff, institutions who know and trust us, and the regulators. Thank you for your custom. It is the fuel which drives our engines. Thanks also to you for the introductions and referrals we enjoy from existing clients.
 

---

 

This article features in the 2022 issue 3 edition of the Proficio, NFB's bi-monthly financial update newsletter. Download the complete newsletter here.