South African asset class returns were fairly muted in 2016, except for bonds – the All Bond Index returned 15.4%. These more moderate returns are what investors should expect after the excellent returns of the past 15 years, driven by substantial earnings growth and a general rerating of South African assets. Unfortunately, rerating can’t continue indefinitely (well it can, to a degree, but these situations are commonly termed ‘bubbles’) so this tailwind had to stop sometime.

Asset Class Returns for 2016:

• ALSI: 2.6%
• Cash: 7.4%
• Bonds: 15.4%
• SA Property: 10.2%
• Foreign Equity: -4.8% (in ZAR) and +7.9% (in USD) (the ZAR a big swing from tailwind to headwind, in terms of return contributions)

Interestingly, many people were a year ago desperately seeking ways to take money offshore with the rand trading at R15.60/US$. The rand is now trading at R 13/US$ and this quest has gone quiet. Now is probably a good time to boost the offshore component of your portfolio if it is at all underweight.

At the end of 2016 it felt as if the world was sighing with relief at a fresh start and being able to leave a rollercoaster year behind. Brexit, Donald Trump’s election as President of USA and political shenanigans in South Africa mostly involving Jacob Zuma all contributed to a volatile year. Equity markets, in particular showed a total rotation in where returns came from, with sectors such as resources and financials – previously left behind in fear fuelled by current affairs and popular opinion – coming into their own and surprising many market participants.

In concluding, please refer to the graph below which illustrates:

• Patience is key when it comes to investing, believe in the plan that you and your advisor have put in place.
• Markets are allowed to have a breather, returns will come through if you stay the course.
• Quality asset managers will deliver the returns, history has always taught us that.
• Time in the market and not trying to time the market is vital to achieve superior returns.
• Judging an asset manager based on short-term returns is foolish, one needs a long-term view.