US stocks, especially leading tech stocks, have given investors great returns, says Cannon Asset Managers CEO Adrian Saville.
US stocks, especially leading tech stocks, have given investors great returns, says Cannon Asset Managers CEO Adrian Saville.
Image: Russell Roberts

The 2010s will close as a great decade for investors who  invested globally and a spectacular decade for those with exposure to US stocks and, in particular, leading tech stocks, Cannon Asset Managers   CEO Adrian Saville says.

The S&P500 returned around 18.75% a year in rand terms for the decade, while the local market returned less than half this at 7.66% a year.

Investing in the Nasdaq 100 — which gives you an idea of what you could have earned by investing in the FAANGs  (Facebook, Apple, Amazon, Netflix and Google) — would have earned you 24.54% in rands each year.

Easy monetary policies have driven global equity markets, particularly in the US where the S&P500 has broadly doubled, while at home the all share index, excluding dividends, has been almost flat, says Old Mutual Investment Group’s director of investments, Hywel George.

Most retirement fund investments made the most of the allowed exposure (30%) to offshore markets and it is arguable that investors could have benefited more without the limit, he says, adding that many investors with discretionary money have been taking that offshore, especially in the second half of the decade.

Easy monetary policies have boosted global equity markets, says Old Mutual Group's director of investments, Hywel George.
Easy monetary policies have boosted global equity markets, says Old Mutual Group's director of investments, Hywel George.
Image: Hetty Zantman

But could we have made better investment decisions if we hadn’t been quite so influenced by our emotions?

At the beginning of the 2010s,  SA was hosting the Fifa World Cup; load-shedding was on hold; we hadn’t realised the true extent of former president Jacob Zuma’s ability to wreck the country; the government’s balance sheet was strong; economic growth had recovered from the global financial crisis to 3.5%; and the exchange rate was R7.50/$,   Saville says.

The rest of the world was emerging from the global financial crisis and there was much uncertainty about global investments.

In this setting, especially with the feel-good factor of hosting the 2010  World Cup you may well have felt emotionally comfortable investing locally compared to offshore where the cuts of the global financial crisis were still deep.

But fast-forward about six years to December 2015 when Zuma fired  the then finance minister Nhlanhla Nene and the rand collapsed to around R16/$.   South Africans suddenly developed a huge appetite for investing offshore, buying a dollar at double the cost it was at the beginning of the decade, Saville says.

One mistake South African investors make is to look to one avenue of investing as a “panacea”,  says Anet Ahern,  CEO of PSG Asset Management, citing the current interest in offshore markets as an example.   While you may have had some success investing in the US and been buoyed by the currency movements, investing offshore for emotional reasons can lead to negative returns in hard currencies like the dollar, Ahern says.

One should not look at one avenue of investing as a 'panacea', says PSG Asset Management CEO Anet Ahern.
One should not look at one avenue of investing as a 'panacea', says PSG Asset Management CEO Anet Ahern.
Image: Hetty Zantman

Both she and Saville say your offshore investments should be strategic — you should invest offshore to diversify your portfolio away from the local economy, which represents less than 1% of the world economy.

Deciding when to invest offshore is a harder tactical decision, Saville says.

Getting the timing wrong has caused large losses for many investors tempted to make the move after marked rand weakness, Ahern says. 

Saville says the other lesson is that it always feels comfortable to buy at the top.  You are likely to feel comfortable about investing in the US at the moment because  the equity market there has been strong but shares in the US are “richly priced” and  FAANGs stocks “are well beyond fair value”.

Ideally you should invest when market valuations are reasonable and there is some catalyst and a supportive environment for prices to move, he says.

Europe is wrestling a number of demons like “the expensive Brexit misadventure” and the fallout of the trade war. But while shares in the US are at “Herculean prices”, shares in Europe, and particularly the UK, are priced as if  the region is a basket case, Saville says. This means some quality assets are trading at deep discounts, he says.

He reckons investors make the same mistake when choosing between local and offshore markets.

Old Mutual is seeing early subdued signs that things may be improving locally and since the market is cheap it could shift quite a bit

George stresses the need  to “ignore the noise”. He says  Old Mutual is seeing early subdued signs that things may be improving locally and since the market is cheap it could shift quite a bit.

Saville says a lesson from the past decade is that markets can remain irrational for a long time. Local equities have battled for a number of years, affecting many balanced or multi-asset portfolios. But you shouldn’t make changes to your portfolio just because the value hasn’t yet been realised, he says.

Eskom is in deep trouble but you need to assess the country’s ability to recover from this. If you foresee  Eskom  restoring  a semblance of stability, the initiation of “a reasonable criminal process”   and an improvement in local economic growth to 2%, then you can expect household spending to sit up, investor confidence to experience some recovery and corporate earnings to enjoy a recovery.

If this happens it will prove that South African equities are “screamingly” cheap and bonds compellingly attractive, Saville says. But, he says, keep in mind that this is a scenario  filled with “ifs”.

Many South Africans have over the past decade moved out of local equities and into income and money market funds, but Ahern says looking to these funds as a solve-all is a mistake.

You risk getting the timing of your exit wrong and the losses you could make will be hard to recoup.  Many investors who weren’t diversified across asset classes lost out on good returns on government bonds as inflation edged lower and interest rates moved higher, Ahern says.

Since 2016, the all bond index has returned between 8% and 15% a year, she says.

One of the biggest changes over the past decade you should not forget is that inflation has come down. You should anchor on beating inflation and shouldn’t expect easy double-digit returns, Ahern says.

You should also, as many investors have done over the past decade, turn an increasing focus on good governance and sustainable environmental and social practices, George says. The fall of Steinhoff was a big reminder for fund managers and investors alike about the importance of good governance.