Latest Economic Update

NFMW-greetings!

As you may be aware, the President addressed the nation on the evening of 15 March 2020, communicating the measures taken by government in response to the scourge of the Corona virus (Covid 19). As a proactive organisation, the fund’s Board of Trustees discussed the possible implications of the Covid 19 to our business, stakeholders and ultimately our service delivery.

The Board noted that that we need to ensure that service delivery is maintained through making use of options at our disposal to achieve this to the best of our ability in the present circumstances. The fund will therefore continue rendering its current services and will operate between our normal business hours of 8:00 am to 16:00 pm, Monday to Friday. We are confident that our business continuity plan will be able to withstand the demands of this event. We will, however, monitor the situation closely and will ensure that we communicate any changes to the operations of the fund as the situation evolves.

The uncertainty that the spread of the Covid 19 has created for investors, has resulted in a severe reaction on the local and global equity markets. Please read the full article included in this mailer. We need to remind ourselves that events like these will come along every so often (previous virus outbreaks included the SARS virus pandemic in 2003 and the Ebola virus in 2014-2016). The impact on the markets will most likely be temporary and they will again recover lost ground.

Going forward, we must caution members to expect a highly volatile environment, where we will most probably experience large variations/movements in returns from the riskier asset classes like equities and property. We remain wary of any global bond exposure in the current environment, as rising interest rates over the medium to longer term pose some risk of capital losses from this asset class.

As always, it remains of utmost importance to focus on longer-term return prospects and investment strategies, as short-term volatility and any reaction thereto could easily result in incorrect investment decisions. At the NFMW we remain committed to provide well-diversified investment portfolios which will provide solid, real returns and capital growth over the long term.

Please remember, we are always here to help if you need any information or assistance with a fund-related query.

Corona virus and the impact on the global markets

The spread of the virus has resulted in shutdowns of many of China’s manufacturing hubs which investors fear will disrupt supply chains and thus have a large impact on global growth. The US-markets are now into correction territory (i.e. a fall of more than 10%), as the spread of the Corona virus outside of China, spooked investors. Italy has become the epicentre for infections in Europe and Brazil has confirmed Latin America's first infection, while various countries across the globe also reported their first cases.

Some measures put in place in response to the outbreak, include the cancellation of meetings and sports events, travel bans, shop closures, banned pilgrimages and strict quarantine measures. Consumer behaviour has also changed with people in China avoiding malls and online companies running out of stock. The IMF’s latest estimate is for global growth to be 0.1% lower for the year with China being 0.4% lower (at 5.6% vs. 6.0%), but there is likely to be a larger short-term impact. This has led to broad-based declines in stock prices across the globe as well as emerging market currencies, including the rand, as investors scramble for the safety of US bonds and gold.

It is widely expected that the US Federal Reserve will reduce interest rates to stimulate the economy while Chinese authorities are planning additional stimulus measures to soften the impact of the shutdown.

In South Africa, the All Share Index is down 9.0% for the month of February and 20% from its peak in early 2018. The SA market will follow the rest of the world down, but some once-in-a-decade opportunities are surfacing. We expect our astute fund managers to capitalise on these opportunities and add value once this issue passes (as they all do eventually).

Due to the unknowns surrounding the virus and the already large losses experienced by local equities, we would not recommend members to take any drastic action at this point in time. The weaker rand has provided some sort of a buffer for the fund’s portfolios with the global funds remaining largely flat for the month.

How is the NFMW performing relative to other funds?

All investments of the NFMW are governed by a set Investment Policy Statement. All investment portfolios have a long-term investment strategy with investment objectives to outperform inflation by a certain percentage per annum (after fees). To achieve these objectives, the assets of the various portfolios are invested in accordance with their respective long-term investment strategies across various asset classes including local equities, bonds, cash, listed property, alternative assets and international assets. These allocations are optimised through various modelling and optimisation techniques to ensure that the targets are achievable over long-term investment horizons.

We have provided you with the performance of comparable portfolios that other municipal funds offer to give you a better sense of the actual investment returns achieved. All returns shown are on a like-for-like basis, to the end of December 2019. Please refer to the table below - the NFMW portfolios outperformed most of the other funds over various periods.

Note: Returns shown are investment returns (i.e. net offer returns)

BEWARE OF MARKET TIMING!

SHOULD I CONSIDER SWITCHING TO A “SAFER PORTFOLIO” THAT PROVIDES GUARANTEED POSITIVE RETURNS?

While we can never be sure as to what lies ahead, especially in terms of investments, history strongly suggests that there is a high probability that equities will outperform other asset classes over a long-term investment horizon.

Since 1925 South African equities have outperformed local cash by more than 7% per annum and by more than 5% per annum since 1995. The principle: “It is all about time in the market and not timing the market” which should always be at the back of any investors’ mind.

It therefore remains of utmost importance to focus on longer-term return prospects and investment strategies, as short-term volatility and any reaction thereto could easily result in incorrect investment decisions.

Over the long-term, the higher risk portfolios like the NFMW Aggressive Growth and Capital Growth portfolios, should therefore again outperform the lower risk portfolios i.e. the Stable Growth and Capital Protector portfolios.

Please obtain professional financial advice should you consider a switch, as incorrect decisions in this regard may have a significant impact on your longer-term retirement savings outcome.