Where your money can grow

NOT ENOUGH: DIVERSIFICATION FOR THE SAKE OF IT

View your investments in context – Natalie Phillips.

different investment strategies, like structured products or portfolios, which would allow them to get their money back when markets don’t perform, or at least 10% a year if markets experience positive movement.

However, if markets do well, the dividend yield is high and dividends are reinvested, more cautious investors normally lose out.

Phillips says many South African companies have become rand hedges over the last decade.

“I think that is why it is so critical to look at your investments holistically and say ‘how can I complement that diversification, looking at my South African investment exposure’, and … ‘where is the value now’,” she says.

While growth has been low, there is good value in some companies in Europe. “We like the cyclicals at the moment.”

The US stock market has benefitted from a prolonged golden period with low interest rates, lower corporate tax rates and declining risk premia, but concerns exist.

Phillips says in their multi-asset funds they typically have a slightly more defensive approach, holding US cash but not large US equity exposure. They’re more cautious about the US stock market now and prefer value pockets in Europe and Asia.

While there are some growth hiccups, Investec Asset Management has a structurally positive outlook on China, with a longterm view. “It is the second biggest economy in the world.

“It is a no-brainer that structurally you’ve got to make an allocation into China, and if you look at the indices – the MSCI ACWI and many others – they are hugely underweight China as it is.”

Mark Lovett of Stanlib warns investors that volatility will go up over the next few years. Quantitative easing and extraordinary monetary policy globally have kept volatility low and while it picked up recently, it hasn’t returned to historic levels.

As such, diversification is a most important consideration.

Lovett says multi-asset products have done very well for South African investors due to an extended equity bull market, but going forward, investors must think about diversification and the asset classes and instruments they choose.

Globally, there has been a move to more sophisticated multi-asset products less reliant on equities. This is emerging in South Africa and may include alternative investments in the unlisted space like private equity and credit.

Lovett says there has been no benefit from diversification between equity and bonds so far this year. Thus, investors may need to cast their nets wider than the narrow traditional equities, bonds, property, and cash metrics.