By Christiaan Wessels
Opening your investment statement over the last couple of months, especially end of June would most probably have caused you to feel a bit anxious. It often leaves an investor wondering if they are still on the right track, are they still invested in the right type of funds or assets, and what should they do? Even the very best investment advisors sometimes ponder over this, even if it is only for a second or two.
This is typical human behaviour, so do not think you are alone. Without a doubt and most of the time it makes sense to not make big moves when there is market volatility, especially when there is a retraction in the market. This is not just a gut feel or an opinion that is given, but history and most importantly, data over different periods in time, shows this.
Phasing in ZAR to USD
However, there is no shame in making a shift or two in your portfolio and adjust your strategy for the right reasons. A while back we advised clients to start phasing in ZAR to USD and this was at a time when the Rand was trading between R 14.50 – R 15.50. This is not to say all clients must do this, but you need to think about the strategy, especially when looking at offshore investing. It is almost impossible to time the right entry point, but to provide clarity is that you must ask yourself is the rand weak at this point or is it a fair price and what will my strategy be?
Uncorrelated funds
If you had been in tech stocks the last year or 18 months you might not agree with this, but these types of funds are uncorrelated with the rest of the market. That is what you want in a portfolio to a certain extent. The real question you must ask is, will these companies still be around 10 plus years from now? Will they be making a substantial difference in our lives over the next couple of years? It is no secret that the world is moving towards technology and AI in a big manner. Not say this is where you should bet all your money, but if your answer is yes to the above questions, there must be a portion allocated at least.
Hedge funds and other
There was a time not so long ago when hedge funds came under immense scrutiny over their high fees and rightly so, especially if it did not deliver a return. These funds typically are not correlated with the rest of your typical unit trust funds in SA. Especially with balanced funds and can add real value to your portfolio. We have used a well-known hedge fund that has delivered really good returns after fees over time and has given clients more diversification in their portfolios. The arrow in their quiver is that they are allowed to long and short shares and this often provides for a wider mandate and more opportunities. Again, I’m not implying this is the alpha and omega, but it can be really wise to get exposure in your portfolio to these types of funds.
Fees
This is probably one of the few things you can have actual control over in your investment portfolio. In most instances it’s the platform and fund manager that get’s the bulk of the fees. Sometimes it makes sense to pay higher fees, especially when blending your portfolio with a hedge fund which is a higher fee structure, but will still most probably give an after fee return that will be to your benefit. All in all, it must be a combination between local/offshore and active and passive. That will probably be the portfolio that will stand the test of time.
Where to from here?
Rumour has it that Europe will most probably go into a recession. They have raised interest rates for the first time in 12 years and the cost of energy has increased almost nine-fold. The US is 50/50 for a real recession. GDP wise they are in a technical recession, but good pay-roll numbers are keeping them afloat. At this stage it looks like a “soft” type of recession which should not have a huge impact on our market. A lot is uncertain given the ongoing war between Russia and the Ukraine. I would recommend an investor to take a phased approach at this stage and be wary of going all in into a specific asset class.