Citadel backs cash and bonds in 2024
Specialist wealth management company Citadel has backed cash and bonds to deliver inflation-beating returns in 2024, while advising investors to exercise caution in terms of where they invest during the year.
Chief economist and advisory partner at Citadel, Maarten Ackerman, said given the current high interest rates, investors can now look at multiple asset classes for above-inflation returns.
“Cash is currently offering very attractive interest rates. In SA, investors can probably look at returns of around 9%, beating inflation. Investors should, however, consider the tax implications and that a bigger allocation of cash makes more sense in tax-friendly products like retirement annuities and tax-free savings accounts,” says Ackerman.
“For offshore allocations, cash is currently giving attractive returns of about 4% to 5% in dollar terms, which we haven’t seen in a very long time.”
Ackerman also backs bonds to deliver high returns, saying domestic bonds are also offering attractive yields because the markets are looking to be compensated for the implied risk of investing in SA given the country’s fiscal position.
“In this space, investors could get good inflation-beating returns from the local bond market in 2024. In the offshore bond space, if one looks at 10year US treasury yields, investments can yield returns of between 4% and 5%. These returns can easily turn into double digits on the back of capital gains if the US starts to cut interest rates,” he said.
One of SA’s largest asset managers, Citadel launched Coronation Active Income Plus Fund in November, geared towards investors with a risk appetite for international credit markets, particularly euro bonds and the US credit market.
While bullish on cash and bonds, Ackerman said the outlook for equities is not looking great. He expects low singledigit returns from both the local and global equity markets in 2024. “We believe that equity will tread water for most of this year. Equity should form part of an investor’s long-term strategy with a weighting to defensive companies.”
Results from SA Fund Managers Survey, conducted by Bank of America Global Research, show that more than 70% of asset allocators believe that SA equities are undervalued, with more than before looking to buy instead of selling SA Inc.
One of the reasons behind the optimism on local equities was that the majority of fund mangers surveyed expect the rand to strengthen to R17.30/$ and for the Reserve Bank to start cutting the repo rate in the second quarter of 2024, which will boost consumer-facing stocks and the domestic equity market broadly.
The survey was conducted from November 3 to 9.
Ackerman holds a different view, expecting the rand to weaken further in 2024.
“In 2024, we expect the rand to remain under pressure, which implies that offshore investments will get the benefit of the weaker currency. Our medium-term view for the rand is that it will fluctuate between R18.50/$ and R20.50/$ with a lot of volatility,” he said.
“It may even go north of R20.50/$ if the global risk-off environment gains traction during the first half of 2024. For the rand to strengthen, SA needs to correct key structural issues, which we do not think will happen until late 2024.”