The OUTvest Investment Committee meeting is an important one for OUTvest clients as it brings together industry experts in the fields of asset management, indexing, financial planning and the economy to critically review all of the OUTvest portfolios and ensuring clients have the tools to meet their savings and investment goals.
In summary, the already weak economy has been hit hard by the impact COVID-19. Whilst markets have recovered from their March lows, the outlook will depend on our ability to grow the South African economy. Before we get too depressed, it is worthwhile to take note of some of the major policy moves by the government recently, including the progress made against State Capture.
Unfortunately, government debt is at unsustainable levels, and if nothing is done, there may be a time when our government may default on its debt obligations. As the Honourable Tito said: “We must be careful to avoid the fate of countries like Argentina and Ecuador that defaulted on their debt this year”. One of the measures that Tito Mboweni has spoken of, is the reduction in wage increases to government employees. Despite this being a very difficult move, there are not many other options that have been presented, other than say massive economic growth.
South Africa has made some good progress on critical areas including a new round of Independent Power Producer agreements and the release of additional spectrum to improve broadband speed and access. These changes could be critical for economic growth in the long run.
So, what happened to your money?
Whilst it has been a very bumpy ride, in general equity markets have delivered positive returns over the year to date, mostly driven by the returns to resources stocks. Our weak currency made our exports very attractive and increased rand earnings to those companies exporting commodities.
Just recently, government bonds yields have fallen quite sharply, this is probably as a result of investor flows into our bond market, which provides a very attractive return on investment, and this provided positive returns for some of our funds.
The rand has continued to strengthen against the dollar, but offshore investments priced in Rands still gave positive performance in line with the global stock market recovery from COVID-19.
Listed property, once the asset class to invest in, remains down almost 50%, negatively impacting on our investment portfolios. Unfortunately, this is where COVID-19 may have changed the commercial property landscape forever, as more of us may end up working from home negating the need for large offices.
In general, fund performance has struggled to deliver the returns that we would have expected for your money, even over longer periods and the returns on anything other than cash are disappointing.
That said, we don’t think cash will provide the stellar relative returns in future as the repo rate is at extremely low levels, and we think risk assets will start to recover their performance.
Changes are coming…
The efficiency of our portfolios has served investment performance relatively well compared to our industry peers. The team at CoreShares and OUTvest are in the process of making changes to the investment allocations in the portfolio. We will provide information of these changes in early 2021.
2020 was the year that no-one predicted. It was a year that followed difficult years and many South Africans already weary of low economic growth prospects, high inflation, unemployment and corruption were thrown into a global pandemic that will change the lives of billions of individuals.
In times like this, we tend to focus on the negatives, and they start to define our way of thinking. We tend to use this to define our outlook and our way of thinking starts to define how we react to situations. I say this as someone who is guilty of this and I needed to remind myself that my reaction in part determines its outcome.
Economies are no different. Confidence is one of the leading indicators of recovery and movements in asset prices. In our case, confidence needs to come from our government where we need to see progress on prosecuting those responsible for corruption, creating policy certainty, controlling government debt and fixing many of our broken State-Owned Entities. It’s is very late in the day, but it is coming.
OUTvest is an authorised FSP. All our investments are exposed to risk, not guaranteed and dependent on the performance of the underlying assets. Past performance is not indicative of future performance. Results are provided for illustrative purposes only and are amount and time horizon dependent.