A fresh approach to investing in 2017

Online since 1.03.2017 • Filed under Investment • From Issue 5 - March 2017 - August 2017
A fresh approach to investing in 2017

By Danie Venter, CFP®, Advisory Partner, Citadel

What is indisputable is that the world is seeing a move away from ‘business as usual’. But ultimately, as much as things change, they have a way of staying the same and the sun will continue to rise and set – plus ça change

‘The world is going mad’ and, to some extent, I agree that holds merit. Yes, 2016 began with the looming

Brexit vote, and boy did that surprise us. Moving to more recent history, we’ve seen Mr ‘The Donald’ Trump win the US election, and that’s just on the global front. Closer to home, South Africa’s lucky packet has provided a script that even Hollywood couldn’t have conceived of.

So, set goals for 2017 and plan accordingly. Cash is king and cash flow even more so. Paying off your debt sooner than later will allow you to establish that investment portfolio you’ve been putting off.

‘Good idea,’ I hear you say. So, what are your options? You can invest in an actively managed unit trust portfolio which, simply put, allows a bunch of similar investors to put their money together to buy a combination of investments such as shares, bonds, listed property, or even cash. Alternatively, you can acquire a passively managed Exchange Traded Fund, more commonly known as an ETF, which generally track one asset class specifically.

It is also key to consider what expectations and risks are associated with each asset class over the medium term (ie five years) and how the uncertainty associated with recent events locally and globally might affect your investment.

South African equities

When you buy a share (or equity), what you are paying for today is the future earnings the company will generate for you as a shareholder. The South African market finds itself in a peculiar scenario as current earnings (as illustrated below) are under pressure. However, bear in mind that the majority of South African-listed companies sell goods to the international market and often in US dollars. As the South African rand weakens, higher than expected earnings when converting back to rand can be expected. So, there may be a glimpse of hope within SA Equities. Expect muted performance from SA equities with a few hail-Mary stories of star performance by certain companies.

Global equities

Investors hate uncertainty and have become extremely skittish towards unexpected news headlines. For example, consider the day Trump was elected. As the US election results were announced and it emerged that Trump was probably going to win, US equities dropped off a cliff, losing around 5.5%, only to do an about-turn several hours later and recover 6.5% from the low point by close of the trading day. Similarly, post the Brexit vote, the UK market was under considerable pressure as global investors feared the worse. Several weeks later, the market stabilised.

Earnings have been under pressure in both the UK and the European region since 2007 and you can expect a bumpy ride in equities as lacklustre economic growth is set to continue. Why is economic growth so important? Well, if an economy grows there is more business to do.

This translates into more sales that should result in higher earnings levels. This, in turn, enables you to conduct more business and so on.

South African property

Over the past ten years, South African Property has been the blue-eyed-boy everyone has fallen in love with. And it’s not surprising – it has returned 17.6% per annum and claimed the winning seat for domestic assets. Late last year, property achieved fresh highs and was tracking relatively sideways as local economic conditions were challenging. However, local property as an asset class has remained largely stable in comparison to its global counterpart. Nonetheless, you should be cautious when including the asset class in your portfolio.

South African bonds

TINA (the investment acronym ‘there is no alternative’) describes a world in which returns are muted and investors are willing to take on more risk to generate positive returns.

We have seen many foreigners snapping up SA bonds, and generating impressive results for the asset class despite much uncertainty on the home front. However, just as fast as the funds have flowed into the market, so too they may leave. This could have a knock-on effect on the rand that could stumble somewhat against other international currencies. It is also important to consider the tax implications on holding this asset in your portfolio.

South African cash

Year to date, before considering tax, cash has shown stellar returns given the limited risk associated with holding funds in a money market account. Cash will be affected by interest rate decisions taken by the Monetary Policy Committee (MPC). Given all the uncertainty surrounding the South African climate at present, the MPC will have a challenging time balancing interest rates and inflation. However, over the long term, holding cash does not pay as it is highly unlikely to maintain its purchasing power (ie to combat against the effects of inflation).

So, in this uncertain world, what should your fresh approach be for investing in 2017? Remember, investing

is about time in the markets and not timing of the markets. Understand the impact of the investment decisions you make and consult a qualified financial advisor to guide you and your family through these turbulent times

[Kindly note that this article does not constitute financial advice. All information and opinions provided are of a general nature and are not intended to address the circumstances of any individual.]

Issue 5 - March 2017 - August 2017

Issue 5 - March 2017 - August 2017

This article was featured in SABI Magazine Issue 5 - March 2017 - August 2017 .

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