For the majority of South African investors, these four numbers represent a year that most are quite happy to see at its end. The proverbial punches started in December 2015 with Nenegate, and in January last year, global financial markets produced their worst start in decades, preceded by a tumbling oil price. Locally, a sovereign credit ratings downgrade plagued markets as our economy continued to slow down.
On the political front, allegations of state capture, the possible prosecution of our finance minister and wide spread corruption in state-owned enterprises dominated headlines throughout the year. Political turmoil was not unique to South Africa though, as around the globe it has been a year of elections surprises, followed by increased economic uncertainty. On 23 June, Great Britain and Northern Ireland decided “to be great again,” by voting (52% for and 48% against) to leave the European Union. Then, across the pond, Hillary Clinton got trumped by a candidate whose chances to become president were five times lower than her own in January (12% versus nearly 60%). Europe continued to struggle with an influx of immigrants and the resulting refugee crisis, and around the world the political will for continued globalisation has seemingly waned. All of this was of course brought directly to you through myriad forms of electronic media, with the social forms (Facebook, Twitter, Instagram and others) often long on sensation, and short on fact.
Against this backdrop of political and economic mayhem, financial markets reflected the increased uncertainty with which investors are faced. The asset classes that provide long term growth (equities and properties) delivered returns well below their ten year averages, with cash and bonds being the clear winners over the last year, as the table below illustrates:
| |
Annualised performance to 31 December 2016 |
| Asset class |
1 year |
10 years |
| South African equities |
2.63% |
10.50% |
| South African listed property |
10.20% |
15.76% |
| South African bonds |
15.45% |
7.97% |
| South African money market |
7.39% |
7.31% |
| Global equities |
-4.26% |
11.25% |
During 2016, the Rand strengthened by almost 12% to the US Dollar. It was most certainly not a smooth journey, with the difference between the weakest (R16.89/USD on 20 January) and the strongest (R13.27/USD on 16 August) representing a more than 25% swing. This was by far not the worst performance of the Rand or other asset classes over any one-year period. It illustrates the need for rational investment managers to be the sensible custodians of clients’ hard earned fortunes. We would like to take this opportunity to remind you on which principles the Moore Stephens portfolios are constructed.
Minimise the chance of losing money over the short term
This principle is vital for the portfolios with shorter time horizons. The aim is to deliver inflation beating returns, but with much less risk than more risky portfolios. The Stable portfolio, in particular, has a large exposure to fixed income and enhanced cash strategies in order to reduce its volatility, with a smaller portion of the assets invested in equities, property and offshore securities.
Maximise the likelihood of reaching the investment goal
Each of the portfolios has a real return (or inflation linked) investment goal that increases with investment horizon. The second principle is to construct portfolios that have a high likelihood of reaching this goal at the end of the investment period. For the longer term portfolios, it implies an increased exposure to risky assets (equities, offshore and property) with reduced protection against short term volatility in the form of bonds and cash. The risk in longer term portfolios is not so much daily volatility, but the loss of purchasing power over longer time periods.
Keep the client invested
There are many studies where investment markets often outperform the investors in that market, and this can be attributed to investors making frequent changes to their portfolios. The third principle that we follow is to design portfolios that increase the chance of clients remaining invested for the long term, as this is one of the most important contributors to financial peace of mind. Our team is mindful of what happens in competing investment portfolios, but will not hesitate to follow a course of action against the mainstream, if it is likely to deliver a better outcome for investors over the long term.