SA ‘no more volatile than other emerging markets’
Given recent events it is easy to overestimate SA’s woes and not recognise that there are other emerging market countries also experiencing challenges.
Herman van Velze, head of equities at Stanlib, says while conditions affecting SA’s economy are felt strongly close to home, this country is not more volatile than other emerging markets.
“All emerging markets have their challenges and across the spectrum of emerging markets we do not stand out as problematic,” Van Velze says.
“Prior to the past couple of weeks SA stood out more as a beacon of stability and recently we have pulled back somewhat from that position.
“We are part and parcel of the emerging market sentiment in general and there is no justification for seeing SA as a basket case or poorly positioned in comparison to our emerging market peers.”
He notes there are political issues in emerging markets such as Brazil and South Korea and on the economic front SA is better placed than countries such as Turkey.
“SA was setting itself up for a robust few quarters and following recent events that trend will be somewhat muted. Even so SA does not stand out from a global investor’s perspective as being particularly risky relative to other emerging markets.”
At the same time, many investors are opting for a conservative investment approach and relying of professionals to make their asset allocation.
Jeanette Marais, director client services and distribution at Allan Gray, says all of the solution funds such as balanced funds are attracting increasing interest from investors.
“People are picking their managers and trusting those managers to make the asset allocation decisions for them and this is the fastest growing and the best-supported class of funds,” Marais says.
On a less positive note, she says the industry figures show that people are still following short-term performance.
For example, Allan Gray’s performance has resulted in money flowing into its funds in response and other funds are losing assets.
However, the reality is that with good fund managers performance is cyclical and the same investors who are moving into the performance flavour of the month will be shifting to another fund manager in the future.
“This switching behaviour is the greatest destroyer of wealth but it is hard to get people to recognise they need to pick good managers and stick with them,” Marais says.
In some cases the pattern may be led by some financial advisers who feel pressured by clients to demonstrate that they are delivering ongoing value. By pointing to latest performance numbers advisers can motivate clients to switch funds.
Marais says it would be far better if financial advisers map out their value propositions in advance and then communicate that to their clients.
In other words, advisers can explain that they deliver good value right at the beginning by helping clients to develop a well thought out investment strategy and ensure their clients’ money goes into good funds carefully selected to deliver consistent long-term performance.