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LONG TERM LESSONS
July 2015
John Orford
INFLATION IS PUBLIC ENEMY #1
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man”
Ronald Reagan
INFLATION IS PUBLIC ENEMY #1
Source: Old Mutual Investment Group, MacroSolutions
0.7% REAL RETURNS OVER THE LAST 95 YEARSCash is trash
IT’S EQUITY FOR REAL WEALTH CREATIONAnnualised real return December 1929 – December 2014
Source: Old Mutual Investment Group, MacroSolutions
THE SANDTON SKYLINE FOR SA EQUITY
Source: Old Mutual Investment Group, MacroSolutions
December 1924 – December 2014
IT’S TIME IN THE MARKET NOT TIMING THE MARKET
THE VIRTUE OF PATIENCE
Source: Old Mutual Investment Group, MacroSolutions
1 day and 1 week: Rolling total returns, June 1995 to current
1 month to 10 years: Rolling total returns, January 1925 to current
Holding period
IT’S MAINLY ABOUT COMPOUNDINGR100 in the JSE 90 years ago = R21 million
DO YOU HAVE ENOUGH BASKETS?
DIVERSIFICATION HELPS50 Years 30 Years 20 Years 10 Years 5 Years
SA Equities17.7%
SA Equities18.0%
SA Property17.1%
SA Property21.5%
SA Property21.4%
MacroSolutions Balanced Index 15.9%
MacroSolutions Balanced Index 17.0%
SA Equities15.1%
Gold18.3%
Global Equities21.1%
Global Equities15.5%
Global Equities17.0%
MacroSolutions Balanced Index 14.7%
SA Equities18.0%
SA Equities15.8%
Gold13.5%
SA Property14.5%
Global Equities14.1%
MacroSolutions Balanced Index 15.7%
MacroSolutions Balanced Index 15.2%
Global Bonds13.1%
SA Bonds14.4%
SA Bonds13.3%
Global Equities14.5%
Global Bonds11.6%
SA Cash10.9%
Global Bonds14.1%
Gold12.6%
Global Bonds11.0%
Gold10.6%
SA Bonds10.5%
SA Cash12.0%
Global Bonds11.9%
SA Bonds8.5%
SA Bonds10.0%
SA CPI8.8%
Gold11.3%
SA Cash10.3%
SA Cash7.4%
SA Cash5.9%
SA CPI8.6%
SA CPI6.1%
SA CPI6.0%
SA CPI5.2%
8.9% 9.4% 11.0 15.4 16.2
Highest Return
Lowest Return
Range between highest and lowest return
Source: Morningstar
ACTIVE ASSET ALLOCATION CAN ADD VALUE2010 2011 2012 2013 2014
SA Property29.6%
Gold 34.8%
SA Property35.9%
Global Equities59.6%
SA Property26.6%
SA Equities19.0%
Global Bonds30.7%
SA Equities26.7%
MacroSolutions Balanced Index 22.8%
Global Equities15.8%
SA Bonds15.0%
Global Equities15.8%
Global Equities21.3%
SA Equities21.4%
MacroSolutions Balanced Index 11.3%
Gold 14.6%
SA Property8.9%
MacroSolutions Balanced Index 20.4%
Global Bonds19.6%
SA Equities10.9%
MacroSolutions Balanced Index 13.2%
MacroSolutions Balanced Index 8.9%
SA Bonds16.0%
SA Property8.4%
Global Bonds10.2%
SA Cash6.9%
SA Bonds8.8%
Gold 10.8%
SA CPI5.4%
SA Bonds10.1%
SA CPI3.5%
SA CPI6.1%
SA CPI5.7%
SA Cash5.2%
Gold 8.9%
Global Equities0.5%
SA Cash5.7%
SA Cash5.5%
SA Bonds0.6%
SA Cash5.9%
Global Bonds-4.8%
SA Equities2.6%
Global Bonds5.4%
Gold -11.2%
SA CPI5.3%
34.4% 32.2% 30.5 70.7 21.3
Highest Return
Lowest Return
Range between highest and lowest return
Source: Morningstar
RISK/RETURN PLOT: ANNUALISED RETURNS VS VOLATILITY OVER 20 YEARS
Source: Old Mutual Investment Group, MacroSolutions
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%10%
11%
12%
13%
14%
15%
16%
17%
18%
Risk
Retu
rn
Balanced Index
Profile Capital
Profile Stable Growth
Profile Balanced
Profile Pinnacle
Money Market
SA Bonds
Global Equity
SA Equity
BUT WHAT IS THE OUTLOOK VS THE PAST?
Source: Old Mutual Investment Group | NB: These are long-term, real returns expected over the next five years, as at 15 January 2015* The international return expectations above are in US Dollar terms; any rand depreciation will add to returns in rands.
SA
Equity
Property
Bonds
Cash
Global*
Equity
Bonds
Cash
Expected 5 Year Real Return
View
5.0%
4.5%
2.5%
0.5%
5.0%
-1.0%
-1.0%
Neutral
Neutral
–
Neutral
+
–
–
Neutral
+
Historic Real Return (since 1929)
7.8%
4.7%
1.5%
0.7%
7.0%
3.3%
-0.3%
Neutral p.a.
MacroSolutions Balanced Index 3.8%5.9%
CONCLUSION
• Inflation is the enemy
• Longer term cash is trash not king
• You need equities to beat inflation
• “Time in the market” not “timing the market”
• Diversify to reduce risk
• Active Asset Allocation can add value
REGULATORY INFORMATIONOld Mutual Investment Group (Pty) Limited
Physical Address: Mutualpark, Jan Smuts Drive, Pinelands, 7405
Telephone number: +27 21 509 5022
Old Mutual Investment Group (Pty) Limited (Reg No 1993/003023/07) is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002.
Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. The investment portfolios may be market-linked or policy based. Investors’ rights and obligations are set out in the relevant contracts. In respect of pooled, life wrapped products, the underlying assets are owned by Old Mutual Life Assurance Company (South Africa) Limited who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respect of these products, no fees or charges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets.
Disclosures: Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price sensitive and unpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares. All employees of the Old Mutual Investment Group are remunerated with salaries and standard incentives. Unless disclosed to the client, no commission or incentives are paid by the Old Mutual Investment Group to any persons other than its representatives. All inter-group transactions are done on an arms length basis. We outsource investment administration of our local funds to Curo Fund Services (Pty) Ltd, 50% of which is owned by the Old Mutual Investment Group.
Disclaimer: The contents of this document and, to the extent applicable, the comments by presenters do not constitute advice as defined in FAIS. Although due care has been taken in compiling this document, Old Mutual Investment Group does not warrant the accuracy of the information contained herein and therefore does not accept any liability in respect of any loss you may suffer as a result of your reliance thereon. The processes, policies and business practices described may change from time to time and Old Mutual Investment Group specifically excludes any obligation to communicate such changes to the recipient of this document.
This document is not an advertisement and it is not intended for general public distribution. The recipient is advised to assess the information with the assistance of an advisor if necessary, with regard to its compatibility with his/her own circumstances in view of any legal, regulatory, tax and other implications. The information herein does not constitute an offer to sell or a solicitation of an offer to buy any securities. This document is expressly not intended for persons who, due to their nationality or place of residence, are not permitted access to such information under applicable law.
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