The wider the lens, the less appealing returns from cash look

● Don’t look back, you are not going that way, Christo Lineveldt, investment specialist for personal investments at Coronation Fund Managers, warns in the manager’s recent Corospondent communication.

Returns for the past three to five years buck the long-term trend that rewards investment risk.

On average, investing in a money market fund, bond fund, high equity multi-asset fund or a general equity fund would have earned between 7% and 8% a year over the past five years to the end of July, says Lineveldt.

And worse, over three years, you would have earned a better return from a money market fund, (7.4%) with almost no risk to your capital, than you would have earned from an equity market (3%).

But over the past 80 years, cash has delivered 7.5% a year vs 14.4% a year from local equities, Old Mutual’s Long Term Perspectives shows.

Investors should know that the returns of the past four years are not the norm: South African equities consistently produce higher returns than cash most of the time, rewarding investors for the extra risk involved, Prudential’s Hamilton van

Breda says.

Multi-asset funds aim to capture this underlying, longer-term performance, investing across equities and listed property with the potential to deliver higher returns, and lower-risk bonds and cash to protect you from the negative returns that equities on their own can deliver.

Lineveldt agrees that investors should know that selling shares and listed property after periods of poor performance is as bad as buying more of these shares after periods of exceptional performance.

He says the reality of how markets work means that one’s expected return increases as past returns remain lower for longer.

But Coronation’s analysis of the flow of money into unit trusts indicates that selling growth assets is exactly what many investors are doing — they are moving out of equities and into less risky assets, like cash.

Lineveldt says leading up to 2015, investors displayed an increasing preference for long-term funds because equities had outperformed cash handsomely over the preceding three years.

Over the past three years, however, cash has outperformed equities, disappointing those who switched to equities. But the recent poor performance of local equities is not a signal that investors should now switch to cash.

Periods in which cash outperforms equities are temporary and eventually equities resume their stronger performance, Van Breda says.

Old Mutual Investment Group’s head of macro solutions, Peter Brooke, says an analysis of threeyear returns over the past 90 years shows that one-third of the time, cash outperforms equities.

It’s the returns you earn for the other two-thirds of the time that you need to capture to benefit from the long-term rewards of equities.