Each quarter we receive commentaries from most of the leading asset managers in the investment space. We also attend many investment roadshows and presentations held by the asset managers during the course of every year. Hours are spent on researching funds and the markets, but the one key theme that we would like to touch on in this article is clients’ expectations and their response of switching into cash-based investments as a result of their short-term concerns.
We have taken snippets from Investec, Prudential and Allan Gray to highlight our point of sticking to equities through the good and bad times so that one gets well rewarded over time. Many investors make the mistake of moving into cash only to miss out on the next market run. Investec records show that during the first half of this year most investment inflows have been into cash portfolios. This activity corresponded with significant outflows from equities. The facts are though that at the end of July 2017 and at the beginning of August 2017 the JSE reached new record highs!
In spite of what history has taught us, clients still sell when they should be buying and so adding value to their investment portfolios.
Client Expectations
From the graph below it can be seen that equity markets have on average inter-year declines of 16.1%, but positive annual total returns in 30 in each 37 year period. The investor that stays in the market through the various investment cycles and sticks to his/her plan developed between themselves and their advisor is the investor that gains the greatest reward.
Which was the best stock market to invest in over the last 117 years?
Few would have predicted the answer would be South Africa. A snippet from Rob Dower‘s (Allan Gray‘s Chief Operating officer) quarterly commentary supported by a book called “Triumph of the Optimists“, produced by UK academics researching at the London Business School, compared 101 years of stock market returns around the world. The resultant data suggested that across the world, those prepared to take risk by investing in equities have earned high real returns which significantly increased if the start date was in a period of crisis. The data is updated each year under the sponsorship of Credit Suisse and re-published, now under a less eye-catching title. The main point, however, still holds.
Over a period of 117 years, the global average annual return for equities has been just over 5% above inflation. At 7.2% per annum, above inflation, the JSE is the best-performing stock market in the 23 country dataset. This isn’t because our country has fulfilled its potential or grown faster than others; it is because the risk premium for investing in South Africa has been higher.
Our country is facing unprecedented challenges at the moment but we urge investors to stick to the things that they can control and follow a well diversified investment plan.
