“Equities remain where you want to be invested, as this is the asset class with the best probability of giving you reasonable return above inflation over the next decade, but we just don’t think returns will be as good as they were this past decade.”
Investors who took money offshore have enjoyed a great decade, with top-performing equity funds invested abroad returning average annual returns in excess of 15% a year in rand terms.
Now conditions are very different, valuations are much more stretched and the outlook is more challenging than it was when the last decade started, Koekemoer says. Alex Tedder, Schroders chief investment officer of global and US equities, also cautions investors to expect lower returns. Currency risk is significant and unpredictable and the rand can strengthen in the absence of positive local developments when other major currencies weakenTedder says there is a wider-than-average disparity between sectors offering perceived safety and stability , and those exposed to global trade.
For example, the currency tailwind you enjoy when the rand weakens can easily be a headwind when the rand strengthens, he says. The MSCI World has a broader focus than the S&P 500, while the MSCI All Country World index has an even broader focus as it includes emerging markets. Koekemoer says Coronation believes this is a more robust way to build a portfolio, though the bulk of 60-80 shares selected may end up being those that represent between 10 and 20 investment themes.
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