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Sangeeth Sewnath
Deputy Managing Director

What a difference a quarter makes. After a relatively upbeat start to 2017, President Jacob Zuma's cabinet reshuffle brought with it the dreaded credit rating downgrades to junk status and a much more jittery market. The cautious optimism we experienced at the beginning of the year has all but petered out. The expected improvement in equity markets, after almost three years of flattish returns, now appears to be pushed out yet again.

But before we get too despondent, let’s remember that we have seen similar conditions before, albeit for different reasons. What is important is that we learn from them. There are a couple of rules of thumb to bear in mind during times like these.

Firstly, in our view, retreating to cash is a bad idea. While cash is attractive as it guarantees that you’re not going to lose capital, it also guarantees that you won’t achieve inflation-beating returns after tax. Furthermore, research has demonstrated that investors who retreat into cash generally miss the ten best-performing days in the equity market. Historically, the ten best-performing days contribute between 30% and 50% of the returns!

Secondly, it is not a good idea to focus on short-term news flow, which changes radically on a daily basis. Making knee-jerk decisions based on day-to-day events will lead to poor outcomes.

Finally, if you use multi-asset funds as your investment solution, it’s likely that your portfolio manager has positioned the portfolio based on their long-term outlook. Your short-term shifts may dilute their positioning and hence not benefit you when the time is right.
Making knee-jerk decisions based on day-to-day events will lead to poor outcomes

Over the last three years, much of the returns that South African investors have received have been significantly influenced by changes to the currency, and particularly movements in the rand/dollar rate. Hence, it is always prudent to review your asset allocation. If you’re investing for the longer term, studies have shown that at least a third of your portfolio should be invested offshore. There are several avenues available to do this. In addition to multi-asset funds, which can have up to 25% invested offshore, you could consider our rand feeder funds, which are open for business, or use your offshore allowance to invest directly in foreign funds.

When Nhlanhla Nene was fired as finance minister in December 2015, the rand immediately collapsed to above R15 to the US dollar. Yet the response has been more muted this time round. The question on investors’ minds is: Why has the rand not gone back to the R15 to the US dollar levels? In a nutshell, money from around the world is flowing into emerging market assets – including South Africa. This is unlike the outflows we were seeing in December 2015, when money was pulled out of emerging markets. Jeremy Gardiner delves into the implications of this in more detail in his article.

We are celebrating two important milestones this quarter – a 20th anniversary for our Investec Opportunity Fund and a 10th anniversary for our Investec Global Franchise Fund, both of which are managed by Clyde Rossouw and his team. In order to keep a level head in these conditions, we believe that experience is one of the most valuable assets. Be sure to read Clyde’s article in which he looks back at the highlights and challenges the Quality team has faced over the years.

Finally, although the wheels seem to be turning very slowly, the Retail Distribution Review (RDR) is finally heading into the implementation phase. In this issue, Jaco van Tonder sets out the proposals that are likely to impact advisor businesses. He also looks ahead to the Phase 2 proposals, which will see a new debate emerging and have important consequences for white label unit trust funds.

We trust you’ll enjoy the read. As always, we thank you for your support.


Kind regards

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Collective investment scheme funds are generally medium to long term investments and the manager, Investec Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing, up to 10% of fund net asset value to bridge insufficient liquidity, and scrip lending. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act.

Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. A feeder fund is a fund that, apart from assets in liquid form, consists solely of units in a single fund of a collective investment scheme which levies its own charges which could then result in a higher fee structure for the feeder fund. The Offshore Fund is a sub-fund of the Investec Global Strategy Fund, which is a UCITS organised as a Société d’Investissement à Capital Variable under the law of Luxembourg. For further information on the Fund including application forms and a schedule of fees and commissions, please contact Investec Asset Management. Fund prices and English language copies of the Prospectus, Report & Accounts and Articles of Incorporation and local language copies of the Key Investor Information Documents may be obtained from our website and free of charge from the following country specific contacts: Luxembourg – Investec Global Strategy Fund, 49 avenue J.F. Kennedy, L-1855 Luxembourg. In South Africa, Investec Asset Management is an authorised financial services provider. Those sub-funds offered for public sale in South Africa are approved under the South African Collective Investment Schemes Control Act. Issued by Investec Asset Management, May 2017.