A conservative investment strategy can be described as a low-risk investment with the objective of generating above-inflation growth over a 3-year period. A conservative portfolio is comprised of stable and income funds.
A moderately conservative investment strategy can be described as a low to medium-risk investment with the objective of generating above-inflation growth over a 3 to 5-year period. A moderately conservative portfolio is comprised of stable and medium-equity funds.
A moderate investment strategy can be described as a medium-risk investment with the objective of generating growth well above-inflation over a 5 to 7-year period. A moderate portfolio is comprised of balanced and worldwide funds to achieve its investment objective.
A moderately aggressive investment strategy can be described as a medium to high-risk investment with the objective of generating returns well above inflation over the medium to long-term. A moderately aggressive portfolio is comprised of balanced and flexible funds.
An aggressive investment strategy can be described as a high-risk investment with the objective of generating maximum returns attainable from equity markets (shares) over the long-term. An aggressive portfolio is comprised of equity and value funds with exposure to both SA and offshore equity markets.
2021 will continue to test our patience and resolve with restrictive living, a weak economy, COVID 19 health risks and a volatile investment market. We all need to hang in there and hold on tight as normality should return in 2022, barring the scars of the economic fallout from the pandemic.
SA’s vaccine rollout is a major concern as it is unlikely the government has the resources to distribute and administer it this year. An inept rollout is likely to be another worrying government initiative, but hopefully, support from the private sector will reduce the likely delays in the distribution.
In November, the SA economy was forecast to decline 7% to 8% in 2020, with a small pickup of 3.5% and 2.4% in 2021 and 2022, respectively. With the second COVID 19 wave and increased restrictions from December, the economic outlook has deteriorated further. This will put further pressure on consumers and government’s stretched finances.
The severe fear over COVID 19 that gripped the world last year has declined as we have a better understanding of the virus. However, many unknowns still exist and like other viruses it is mutating, thus making a vaccine rollout complicated. Until most of the population is vaccinated, and a herd immunity is achieved, restricted living will continue. Furthermore, there is a risk of a third wave if restrictions are not adhered to.
Equity markets surged in the last two months of 2020 on the news that a COVID 19 vaccine would be ready to be distributed in 2021. The JSE All Share Index finished 2020 up 4% for the year after plunging 35% in February/March. The positive finish to the year was solely driven by offshore companies, such as Naspers (+30%) and the Commodity sector (+17%). Major local equity sectors, Banks, General Retailers, Property, and the Mid-Cap index, finished down -22%, -17%, -39% and -17% respectively. The US S&P 500 was up 16% in 2020, but the performance was very skewed to the FAANG (Facebook, Amazon, Alphabet, Netflix, Google) shares that were up 65% versus the remaining 495 shares up 10%.
The sincerity of a “cleaner” ANC will be revealed this year as it vows to eradicate corruption (AKA its Secretary General) and if any actionable consequences arise from the Zondo Commission. Battlelines with the Unions have eventually been drawn with wage cuts, but it remains to be seen if the government can stomach the political fallout. Overall, in our opinion, its likely to be another year of incompetent governance, underlining the ANC’s inability to run the country.
Global equity markets are at all-time highs driven by the injection of abnormal monetary stimulus and all-time low interest rates. With a decline in global economic growth, consumer demand is weak which is not fuelling inflation. However, any sign of inflation will drive interest rates higher with a resulting decline in global equities.
The end of Trump is good for the US and the world. Important globalisation can continue, and a more rational and reliable US can contribute to world democracy.
The Trump presidency did highlight the enormous wealth-gap problem, which is one of the biggest risks to global democracy and investment stability.
Biden, the new US president, will have a much-needed calming influence on the world, but it’s likely that tax and social benefit increases will be negative for equities in the medium term.
The World Bank estimates that the global economy shrank 4.3% in 2020 as opposed to a pre-pandemic growth forecast of 2.5%. It forecasts the economic cost to be long-lasting with the 2022 global economy still some 4% smaller than pre-pandemic predictions.
Although there is light at the end of the tunnel as the vaccine is rolled out, the economic fallout this year is likely to be greater than expected and there are many uncertainties around medium-term economic casualties. Global market valuations are stretched and are vulnerable to inflation fears. Locally, our market appears cheap but is dependent on meaningful government policy changes to lift consumer and business confidence. Equity markets are likely to be volatile in 2021 with large sector performance variations. Therefore, portfolio diversification is key as global markets navigate the last stages of the pandemic and gain visibility of more normalised economies returning.
Predicting the short-term (1 to 3 years) movement of the Rand remains extremely difficult to almost impossible, due to unexpected global market flows. The Rand/Dollar strengthened to 14.5 at the end of 2020, driven by global emerging market flows and a continued SA trade surplus. See our detailed Rand report: 23 November 2020.
Given SA’s growing debt crisis, which should get even worse this year with further living restrictions, another debt rating downgrade is likely. This will further highlight our financial weakness and the probable decline in the Rand to +17 to the Dollar.
In these uncertain and difficult times, going back to basics is key to ensure that you have the appropriate investment strategy. Investing is ultimately about achieving an after-tax return above inflation. This requires taking on risk, which can only be optimised over the long term (+ 5 years).
Investment markets will continue to stretch your patience in 2021. Do not capitulate and cash in or chase the hottest performing sector/fund.
Now more than ever, it’s critical to review your financial plan and evaluate whether your investment strategy matches your risk profile to achieve your goals.
Actual 10-year performance annualised from October 2011 to October 2021