Dollar cash the best place in 2018 but …

Let’s be honest…most investors are more than a little worked up after the bad returns of the last 3 years. This becomes an especially long time to be patient when you receive investment statements on a quarterly basis.  See the below table showing the annual returns for the 8 main asset classes over the last 24 years and the notes that follow.

• Local listed property had a torrid year during the 2018 year with the broad index down over 25% for the year. This was by far the biggest drop in the 24 years of data above. Two prominent players in this sector, Resilient and Hyprop, were down 62% and 29% respectively.

• Foreign cash ($) returned about 18% in Rand terms. This number changes as quickly as a SA finance minister though…so the timing and your reference point plays a big role here. It is important to note that foreign cash delivered the lowest average return of all asset classes over the 24 years. Unless you have the ability to accurately predict foreign exchange rates over time, I am of the opinion that this is not a meaningful asset class to use when constructing local investment portfolios. It carries the same volatility as equities while delivering the returns of SA cash.

• If we take into account that 2017 was not nearly as great as the 21% return for local equity would suggest (the Naspers effect) we can understand why people are keen to make changes to their portfolios NOW as they have had disappointing returns for the last 3 years. This is however not the first or the last time we will see periods of disappointing returns and neither will it be the first or the last time that the changes you make to your portfolio now would have been a mistake when you look back 3 years from now.

• Despite the correction we saw in the listed property sector over the last year it is still ahead in terms of average return over both 20 and 15 year. Foreign property is ahead in terms of average return over both 10- and 5-year periods. This does not mean that the current lead will remain unchanged over the next 10 years. Buying anything JUST because it has come down in value is not a winning investment strategy. You have to understand where the asset prices are relative to its value.

• SA equities and property could only deliver 5.8% and 5.7% respectively over the last 5 years. Take note that if you were invested in expensive investment vehicles and had money with fund managers who were unable to outperform the market you would be even worse off. That said, when growth assets deliver cash-like returns for prolonged periods of time you can expect the next 5 years to look different, not the same. 

• I have said this in the past, but it is well worth repeating. The strategy of moving your money to the previous year’s WINNER has in the past produced the same or worse results than moving it to the previous year’s LOSER. Over the 24 years shown, the strategy of betting on the previous year’s best performer would have returned 9.82% p/a (little more than cash) on average whereas betting on the previous year’s worst performer would have given you 10.9% (still much less than a buy and hold strategy) per year. A balanced portfolio that was simply left alone would have out performed both of these strategies.

The temptation to stir your investment pot now, or worse, remove or completely change the ingredients, is huge. We know from experience that this normally leads to worse outcomes for investors but no matter how many articles are written on the subject people simply do not believe it. There is always a reason or a story why this time is different.

Now what exactly am I trying to tell you? Like uncle Jan told me this morning with his annual review, “one must not be too vague either.” A regular reader of this column would know that I think forecasting is dangerous and have some entertainment value at best but for what it is worth I will try my hand at forecasting the expected ranking (not returns) for the asset classes for 2019. For context I add the 2018 raking.

Take note of this forecast for 2019 at own risk because as I have said, forecasting is for the brave and the foolish.

All the best for the last bit of 2019 remaining!

Although all possible care was taken in the drafting of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone planning on taking any financial action based on this document, is strongly advised to first consult with their personal financial advisor. ProVérte Wealth & Risk Management is an authorised financial service provider with FSP no. 5966.