European summer does little to thaw it’s economic winter
It feels like just yesterday that we started the year and here we are, August, and in the midst of a cold winter. It is not just the weather that is challenging, but the investment environment remains difficult and testing. Interest rates emain at multi decade lows around the world and the Euro crisis continues unabated.
The question on everyone’s mind remains:
What about Greece and the rest of the Eurozone? How will things pan out there? In a recent fund manager presentation with Louis Stassen, senior fund manager from Coronation Fund Management, he addressed just this question.
Louis provided the following potential scenarios:
The Euro holds together This would keep a potential depression in the periphery, continued high unemployment and continue to create social unrest. It would also mean an extended period of uncertainty and risk Greece (and others) exit This would mean that those who leave would endure very high inflation, a possible run on their
banks and very high interest rates.
But, having then reneged on their debt, and with a devalued currency, they would have a base from which to grow Germany exits A fairly recent suggestion.
The Euro would then devalue significantly and the new Deutsche Mark would appreciate sharply.
There would also be high inflation and significant interest rate differentials between the two regions would then emerge.
Full break-up This would result in massive disruptions to the global capital markets and underlying economies.
We can only hope that the second half of 2012 improves on a global front.
And if our local funds continue to perform like they have we will make ourselves and our clients only too happy.
Louis believes that the most likely scenario would be that that the Euro would hold together.
If for purely political reasons! No Politician wants to make an unpopular decision and that alone will probably keep the status quo.
So with all this seemingly bad news how do we navigate this difficult investment landscape?
We believe that the answer lies in the protection of the potential downside. Yes it is true that growth is vital and there are some exiting offshore opportunities, both in the developed and emerging markets but we also believe that in protecting capital during the difficult times, long term growth will be sustainable.
Octagon Financial is extremely proud of the performance of our local funds. Despite the challenging markets, the fund managers have managed to deliver above benchmark returns and our blended portfolios have exceeded their
targeted returns.
Please see below the Octagon Efficient Frontier, depicting the annualised returns, benchmarks, maximum equity exposure per fund and investment horizon. The pie graphs depict the asset allocation per fund.
