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Welcome to Taking Stock
Summer 2019

February 2019
By Sangeeth Sewnath, Deputy Managing Director

“Everyone has a plan until they get punched in the face.”
- Mike Tyson


When looking back at 2018, investors would be forgiven for feeling like they’ve been proverbially knocked out. In attempting to understand what happened, I came across two statistics which perfectly illustrate why last year felt like a very bruising round in the ring.

Firstly, volatility spiked dramatically. In 2017, looking at the MSCI All Country World Index, there were only three trading days in which returns fluctuated by more than one percent. In 2018, that jumped to 49 days!

Secondly, December was a terrible month for US equities. The S&P 500 Index shed 9%, thereby recording its worst month since the Great Depression. Back home, we had to contend with yet another year of disappointing equity returns. While the year started off with promise after Cyril Ramaphosa’s victory at the ANC Conference, the market lost steam as the year wore on and fell sharply in the fourth quarter, declining by 8.5% over the year. The longer-term picture is also disappointing: over the last three years to the end of December, the total return from the FTSE/JSE All Share Index was a mere 4.3% p.a.; over five years, the total return was only 5.8% p.a.

The question is what to do in this environment? Given the high levels of volatility, we would steer clear of taking skewed thematic bets. Rather, continue to stay the course, but consider weighting your portfolios depending on your market outlook. For example, many market commentators believe that given the market cycle globally and in SA, it is prudent to tactically skew to more defensive multi-asset funds.

In terms of the outlook for underlying asset classes, we have fielded a lot of questions around the sustainability of returns for the SA bond market given that it has run hard, and whether there is still opportunity offshore. As Clyde Rossouw points out in his article in this edition of Taking Stock, he and the Quality team remain constructive on both asset classes. While it is tempting to implement those views yourself, past experience tells us the big mistake many people make is that they don’t know when to get back into SA equities. They generally only invest in the local stock market once it has already rallied 15-20%, thereby missing out on much of the upside.

As Clyde also points out, the subdued returns from the All Share Index over the past few years have resulted in more attractive valuations for many All Share-listed stocks, so buying opportunities are emerging. Therefore, if you share his view on the outlook for asset classes, a good way of expressing that view and sowing the seeds for the future would be to align yourself with one of the Quality portfolios.

With elections looming, 2019 is set to be a big year for South Africa. Last year was politically bruising too – we had no less than three ministers of finance and I can’t recall another period in which interest rates were both cut and raised in one calendar year. However, as Jeremy Gardiner sets out in his contribution to Taking Stock, things certainly look and feel more promising. It is reassuring that Finance Minister Tito Mboweni is well entrenched in the ANC’s top leadership while confidence in President Ramaphosa is also growing.

This also promises to be a big year for us, with our demerger and listing scheduled for the third quarter. The common question we get is whether we will be a boutique manager once we are independent from Investec Group. While size isn’t a reflection of success, the answer is an emphatic no. As Willis Towers Watson set out in their report The world’s largest 500 asset managers in December last year, we are almost double the size of the second largest asset manager in South Africa.

World’s largest 500 asset managers (SA managers)

Rank Company AUM
116 Investec $140bn
178 Sanlam $73bn
223 Old Mutual $53bn
231 Coronation $50bn
236 Stanlib $49bn
289 Alexander Forbes* $33bn
293 Allan Gray** $32bn
357 Absa $22bn

Source: Willis Towers Watson. Total discretionary assets under management, as at 31.12.17.
*As of 31.03.17. **The AUM is $69bn if Orbis Investments is included. (Orbis is not classified as an SA market manager).

Before I sign off, we finish our series on living annuities in this issue. However, our research has highlighted that there is so much more to add to this debate, so watch this space.

My concluding message remains unchanged – even if you make tweaks to your client portfolios, continue to stay the course. Now is the time to sow the seeds for future growth.



Sangeeth Sewnath
Deputy Managing Director

Important information

All information and opinions provided are of a general nature and are 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 adviser or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down.

This document is the copyright of Investec and its contents may not be re-used without Investec’s prior permission. Investec Asset Management (Pty) Limited is an authorised financial services provider. Issued by Investec Asset Management, February 2019.