Until 31 December 2016 returns on the JSE had been low to flat over the previous 3 calendar years and investors had become a little despondent questioning the logic in remaining invested. Cash holdings by investors in the bank and money market funds were high as returns of around 7% were better than what had been offered by equities in the previous few years.
How quickly things can change is reflected in the year to date (1 January 2017 to 31 October 2017) return of the JSE of 19.6% comfortably outperforming money market returns of 7%. On top of this most of this 19.6% was achieved in the last few months of the YTD. We must point out that a large portion of this return is thanks to the performance of Naspers which currently represents about 20% of the JSE‘s value. But there have been a number of other good performers especially in the Resources sector. These returns show the slowdown in the Alsi from 2013’s 21.4% to 2016’s 2.6% with the subsequent 19.6% recovery in 2017 YTD.
We don’t expect returns to continue at this level but it does illustrate the point that it is a bad idea to remain invested in cash waiting for something to happen – this 19.6% return over a short period of time was missed by many and is unlikely to be repeated in the near term.
Returns in offshore markets have also been strong and with the outlook for the rand being difficult to get too positive about we continue to recommend a healthy offshore exposure. Year to date the S&P 500 (a well used USA equity benchmark) is up 16.9% in US$, a similar recovery to the SA equity market, after US$ returns of -0.70% in 2015 and 9.5% in 2016.
Research has proven repeatedly that timing the markets on a consistent basis is simply not possible. It is far preferable to stay invested throughout the market cycle. Going forward we don’t expect returns to maintain these YTD levels but continue to recommend that clients remain invested in suitably diversified portfolios thereby benefiting from exposure to equities at their appropriate risk levels. Depending on this risk profile adequate exposure to property, bonds and cash should also be maintained but not at the complete expense of equities, both local and offshore.
