Investing in turbulent times – should you avoid certain asset classes?

Nonhlanhla Kunene
By Nonhlanhla Kunene September 23, 2016 09:53
Nonhlanhla Kunene | 23 September 2016

With low growth prospects, largely due to an uncertain political and economic landscape, coupled with the ever-looming possibility of a credit downgrade, the uncertain times for investors continue.

Business confidence continues to decline amidst a backdrop of high unemployment, limited consumer spending due to higher interest rates and rising expenses, a weak rand and generally doubtful global growth prospects.

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With all the uncertainty, investors often start looking for answers on what the best possible investments could be to see them through the low-growth market. We asked around and industry experts shared their somewhat contrasting but interesting views.

For Allan Gray’s director of distribution and client services, Jeanette Marais, it’s all about balance. She says during times of uncertainty, investors should go back to basics and make use of tried and tested investment philosophies, rather than trying to time the market.

Marais feels now is as good a time as any for investors to remind themselves of the benefits of balanced funds, which are flexible in their asset allocation.

Ridwaan Moolla, Absa Stockbrokers’ head of digital for wealth and investments, agrees. “In 2016 we have seen the all share index only giving us just over 1% growth from January to September. The property sector for so long has given fantastic returns but this year it seems to have run out of steam. The bond market is often the sector we south Africans don’t really focus on and if we look at the GOVI index, it has had a year-to-date (YTD) return of just over 13%. Commodities for 2016 have been the darlings and the gold price has helped many resource shares grow at an alarming rate YTD. While all of this is going on, cash has given you an average return of about 7%.”

Moolla believes all of the above make a strong case for a more balanced approach – invest across asset classes to balance returns. Alternatively, he feels investors can opt for the low-risk approach of keeping cash in the bank.

Tackling the issue from a different angle, Citadel’s advisory partner and investment strategist, Maarten Ackerman, says the company believes that ownership of major global corporations with “strong cash flow generating abilities even at current market levels” are still an investor’s best. He warns, however, that the success of such a strategy depends entirely on the companies’ ability to continue generating profits. That, in turn, needs moderate global economic growth, a prospect which Ackerman feels has waned following the weak start to the year and outcome of the Brexit vote.

What about the worst performers? Which funds or asset classes should investors be steering clear of right now?

Moolla believes there is no clear cut answer. The reason is that in order to make a clear decision on what to avoid, one would need to understand the root cause of what is causing a particular market sector or asset class to underperform. This, he says, would be a difficult task that would involve a bit of guessing. “If you don’t feel like spreading your risk across the assets classes and really want to find the right one to exclude, it’s going to take some hard work and time,” says Moolla, stressing how even expert research over the past few months suggesting that the resource sector would run out of steam got it wrong.

“If the experts have gotten it wrong and us mere mortals try to get it right it can only happen with luck. I don’t like having to rely on luck with my investments, so during extreme market volatility I go with the conservative approach of ensuring I diversify across asset classes and sectors,” he says.

For Marais it’s not about the best or worst, but goes back to the investor’s approach, and in the way in which they choose to spread their investment. “Balanced funds are still an ideal wealth-creation vehicle as they’re able to invest in a spread of asset classes, including equities, bonds, property and cash, an opportunity that if used well by an experience investment manager, can also result in substantial returns, while reducing the risk of loss.”

Ackerman believes the poor performance of certain government bonds globally makes them a poor investment choice for now. To illustrate his point, he explained how government bonds with a 10-year duration in Japan and Germany had traded below zero for the first time, and how an increasing number of central banks had moved from a zero interest rate policy to a negative one.

Simply put, Ackerman says it means that as an investor you would “pay these governments to keep your money “safe” over the next decade with the added “certainty” that you will get back less than you originally invested”. This, he adds drily, would not be a prudent investment.

Nonhlanhla Kunene
By Nonhlanhla Kunene September 23, 2016 09:53
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