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Tailored for investment professionals this site provides information on our products, strategies and services. Please remember capital is at risk and past performance is not a guide to the future. We use cookies to ensure that we give you the best experience on our website. This includes cookies from third parties. Such third party cookies may track your use of our website. By continuing you are confirming that you are happy to receive all cookies on our website. Please refer to our Cookie Policy for further information, including steps to take to disable cookies.

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Welcome to Taking Stock Autumn 2018

May 2018
By: Sangeeth Sewnath, Deputy Managing Director
“The only source of knowledge is experience.”


This quote, attributed to Albert Einstein, is particularly apt for the current environment. Although February saw growth assets coming under pressure globally and volatility returning to markets, we are still enjoying the second longest global bull market since the 1920s. Anybody managing money from March 2009, when stock markets hit a low point, would have notched up almost ten years of experience. Yet they still would not have experienced a full market cycle and thus not navigated a bear market.

Recent market jitters aside, the big question is when the bull market will end. The truth is that bull markets don’t die of old age, nor is valuation the primary cause of equity bear markets. History tells us that shocks and recessions are the primary triggers 25% and 50% of the time respectively, whereas tighter credit conditions, at over two-thirds, are the real bull market killers.

History also tells us that investors either tend to leave too early or stay too late. While the threat of trade wars and greater regulation on technology companies do pose risks to global equities, the recent sell-off has corrected valuations and investor sentiment, so a bias to growth assets may still prove to be the right positioning. However, at this late stage of the bull cycle, you would probably be wise to remember that investing in growth assets is for the long term and that it would be best to navigate the road ahead with experience by your side.

Given the recent increase in the limits for offshore investment by collective investment schemes, it has also become more important to choose the right investment manager for the offshore component of your portfolio. To recap, the maximum offshore exposure for Regulation 28-funds has increased to 30% (and an additional 10% to Africa). Research has shown that for many investors, the optimal allocation to offshore assets is more than the somewhat arbitrary 25% previously allowed in terms of Regulation 28. We welcome the change and in many of our portfolios we have taken advantage of these increased limits.


“Bull markets don’t die of old age”

The ebullient mood following the positive outcome of the ANC elective conference and subsequent swearing in of Cyril Ramaphosa spilt over into the markets. Investors took a positive view of South African assets, specifically higher-risk SA Inc. investments. However, the domestic market was not immune to the global equity market jitters and the first quarter ended with a 14% differential between equities and bonds. Investors are now questioning whether the optimism was warranted.

So not only has volatility returned to our market, but investors may also be feeling a bit despondent about returns. Over the ten-year period it’s hard to find any asset class that has produced returns of inflation plus 6%. Quite simply, it is because the ten-year returns also include the massive crash during the global financial crisis.

While there is no certainty when looking into the future, we should be entering a more normal return environment. We should also remind ourselves that short-term returns are misleading. Meaningful conclusions can be drawn over 15- to 20-year periods, as we’ve highlighted in our article looking at the Investec Opportunity and Investec Managed Funds in the context of living annuities.

Investors should not, due to their disappointment of the recent years, give in to irrational decisions. We believe a diversified portfolio, with an appropriate mix of both growth and defensive assets, is the best way to meet future return requirements.

 

Important information

All information provided is product related, and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. 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 and scrip lending. The fund may borrow up to 10% of its market value to bridge insufficient liquidity. 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. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Additional information on the funds may be obtained, free of charge, at www.investecassetmanagement.com The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. The scheme trustee is FirstRand Bank Limited, PO Box 7713, Johannesburg, 2000, Tel: (011) 282 1808. Investec Asset Management (Pty) Ltd (“Investec”) is an authorised financial services provider and a member of the Association for Savings and Investment SA (ASISA). This is the copyright of Investec and its contents may not be re-used without Investec’s prior permission. Issued by Investec Asset Management, May 2018.

*The full details and basis of the award, affirmed on 31.01.18, are available on request