Investment outlook for 2017 and beyond
try re-aligns its growth model from an export and infrastructure-driven economy to a more balanced one where consumer spending plays a strong role in driving growth.
In South Africa, the challenge of stagflation (inflation above the top of the SARB’s target band, but with economic growth below poten- tial) remains a major concern for policymakers: balancing the urgent need for growth, while ensuring sound fiscal and monetary policy means Government must stay on the tightrope.
These dynamics have important implications for stock selection. We therefore ask the managers where they see the best opportunities in the equity markets, and why.
A low return environment – set to continue?
Asset allocation and instrument selection in the context of so much uncertainty is a challenge.
Furthermore, there is a strong argument that risk today is priced irrationally. How else does one explain that nearly $6 trillion (albeit down from close to $9-trillion) of developed economy sovereign debt trades on a negative yield?
Or that the trailing dividend yield on the S&P 500 share index is higher than the five-year US government bond yield?
While the real returns from balanced global mandates over longer periods (5 years and upwards) look impressive, recent returns have been mediocre.
For 2016, the typical manager with a global mandate generated a return some three percent below the inflation rate, even before fees.
Compensation for the risk of asset class ownership is a critical feature of successful investing. By and large, investment managers can only do as well as the markets allow them to.
On the positive side, yields on interest-bearing assets in SA are close to fair value in absolute terms and relatively attractive in a global context.
Nominal real yield of close to three percent; while inflation linked bonds can be purchased on a real yield of around two percent. Investing in credit (corporate bonds) offers a reasonable yield sweetener.
Against this background, we ask the fund managers to give their views on where they believe the best prospects for real (after inflation) returns are to be found, their thoughts on prevailing valuations, and where they are positioning themselves within their multi asset class mandates.
In conclusion, our advice is to stick with your long-term strategy. If you can invest with skilled and experienced managers at reasonable fees, you can expect that over time, they will tend to get more things right and make fewer mistakes.
Do not try and time the market. Remember, time in the market is far more important than timing the market. Martin Jankelowitz, Willis Towers Watson