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Welcome to Taking Stock

Sangeeth Sewnath, Deputy Managing Director

View our Core Fund range Download Taking Stock PDF

In our view, picking an offshore bank deposit is not good use of your risk budget

In a world of minute by minute news flow, information overload and the threat of fake news, it is easy to make knee-jerk decisions. With equity markets having gone nowhere for three years and one-year returns yo-yoing wildly from month to month, investors are undoubtedly displaying irrational behaviour.

So how should this jittery investment world be navigated? Firstly, it is as important as ever to stick to long-term investment goals and strategies. Secondly, pick portfolio managers who have proven their mettle over the long term, have a track record of long-term outperformance and who have therefore successfully navigated different economic cycles.

Once you trust your investment manager to outperform over the long term, it is imperative to understand the signature of return they provide. Each fund we offer targets a very specific outcome, so investors need to make sure that the return signature is aligned to their objective and risk appetite.

When recommending funds, advisors need to convey the return signature to their clients. If investors understand how and why a fund responds to varying market conditions, they are less likely to destroy value by switching at the wrong time. Ultimately, staying the course provides the best long-term outcomes.

As Jeremy Gardiner points out in his article, the uncertain environment has left many investors sitting on the sidelines in cash, where their savings are ravaged by inflation. This is reflected in the first quarter of 2017 industry flows, which show that half of all flows went into income funds. Flows into multi-asset high equity funds have all but dried up – for the first time in eight years. In light of the extreme political uncertainty locally, offshore funds have also started to capture a bigger portion of the flows.

More astonishing, however, is the growth in bank deposits. Household bank deposits have grown from R700 billion in March 2015 to R1 trillion in April this year. It suggests that those who can afford to save are still doing so, but in many cases possibly choosing to sacrifice long-term growth for capital security. An interesting question for advisors to consider is the extent to which their clients are saving in bank deposits – perhaps unbeknownst to them?

In terms of the increased appetite for offshore investing, investors need to take into account that they are taking on more risk in the currency just by deciding to go offshore. In our view, picking an offshore bank deposit is not good use of your risk budget. More cautious investors should consider a fund like the Investec Global Multi-Asset Income Fund as it does have an equity component. In this issue, John Stopford, Head of Multi-Asset Income, sets out how he thinks about risk management and correlations.

In the midst of all the uncertainty and gloom, a bit of luxury wouldn’t go amiss, so SA Equity Portfolio Manager Samantha Hartard discusses why Richemont is a top pick in the Investec Equity Fund.

Finally, as we have seen with the Retail Distribution Review (RDR), South Africa tends to follow the UK’s regulatory example. Post RDR, the Financial Conduct Authority (FCA) recently concluded a re-examination of the investment industry, some of which might have ramifications for the SA regulatory environment. One of the key take-outs is that fund managers are being tasked with the responsibility to assess whether clients are getting value for money. Exactly what that means is not clear, but fund managers will have to report to the regulator how they will determine value for money for clients.

Secondly, post RDR, many clients who were not moved to separate share classes got a worse deal than those who were moved, and the UK regulator is now looking at putting regulation in place to allow managers to move clients to better share classes if they are available. Finally, the FCA is extending the scope of its investigation into LISPS, with-profit annuities and closed-ended schemes akin to structured products in SA, so the regulatory net will be extended to beyond just investment managers. It is unclear how much of this will play out in South Africa, but it is worth taking note given the likelihood of some spillover to our shores.

In conclusion, we remain committed to our mission to provide you with consistently good investment outcomes over the long term. We do this by continuously investing in our ability to better understand the markets and to build portfolios that are robust.

Despite a challenging investment environment, we continue to find attractive investment opportunities.

We appreciate your ongoing support.

Kind regards

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, 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. 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. Where the fund invests in the units of foreign collective investment schemes, these may levy additional charges which are included in the relevant Total Expense Ratio (TER). A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The ratio does not include transaction costs. The current TER cannot be regarded as an indication of the future TERs. Additional information on the funds may be obtained, free of charge, at 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). 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 fund is a sub-fund in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and is approved under the Collective Investment Schemes Control Act. This document is the copyright of Investec and its contents may not be re-used without Investec’s prior permission. Issued by Investec Asset Management, July 2017.