SA pensions still strong on equities

South African pension funds continue to place their bet on equities, with 61% of portfolios invested in the asset class, trending above the Middle East and Africa region which has 55% of total assets in equities.

According to the Mercer Asset Allocation Insights 2022 report on pension allocation trends in Africa, the increased dependence on equities as an investment vehicle came as managers took a more pro-risk stance in anticipation of post-Covid business activity recovery.

This is evidenced in the roughly six percent increase in allocations to growth assets compared to the prior year’s survey results.

“Increased equity allocations were primarily funded by a reduction in cash allocations, with domestic equities being favoured over international equities owing to more attractive valuations within the South African market,” says Mandisa Zavala, head of asset allocation at Alexforbes.

Investment in fixed income/ bonds decreased on the prior year to 30.8%, down from 33.2%, while investment in alternative and cash/short-term asset classes hovered around the 12% mark.

Offshore exposure

The report noted a reduction in exposure to international assets, but this is expected to change significantly following National Treasury’s decision to raise the allocation cap on offshore assets by retirement funds.

“Investors continue to make full use of their permitted allocations to offshore assets, with international assets representing around 28.5% of total allocations in the survey, with this level expected to increase following the increase in the maximum offshore allocation to 45% in February 2022,” according to Zavala.

Looking ahead

Several risks threaten asset portfolios in the second half of the year, the most pressing being the ongoing invasion of Ukraine by Russia and its devastating knockon effect in other parts of Europe.

Events in China in relation to the continued tightening of Covid restrictions, in contradiction of global trends, heightened tensions with the US and a weaker yuan all constitute risks which fund managers need to consider when constructing their portfolios moving forward.