This brief outlines how our investment funds are positioned, taking into account the uncertainty of the following events in the near future:
- 23 November 2017 : Monetary Policy Committee Local interest rate decision.
- 24 November 2017: Moody’s and S&P rating agencies decisions
- 16 – 20 December 2017: ANC elective conference
The Rand is currently the most volatile foreign currency in the world. During times of heightened political and policy uncertainty, the Rand has the ability to weaken by between 2-3% in a day against most foreign currencies. The Rand strength over the last 2 years was not due to local interests, but rather a weak dollar. The search for yield was also still on the cards as foreign investors pursued the higher yield bonds available in South-Africa, ignoring the political uncertainty. Currently, South-Africa’s government bonds are already trading at a premium adjusted yield, as if the government should already compensate for a “junk status”. We are therefor of the opinion that most of the bad news are already in the price of these bonds, irrespective of what the 24th of November 2017 might bring. There will still be movement in the Rand and equity market as these instruments have not priced in a downgrade.
It would be irresponsible to position a portfolio for a specific outcome for either of the abovementioned events since it is not certain. Instead, we remain cautious with regards to the positioning of our funds while still managing the upside-risk (capital growth) together with the downside risk (capital preservation) taking into account the target return and risk budget allowed over the necessary investment horizon for a specific fund. We have the following risk management tools in place:
- We have lowered our Bond exposure over the last 6 months. We still have exposure to Corporate Bonds, Credit, cash equivalent instruments and limited Government Bonds.
- The Point 3 Funds have meaningful offshore exposures. We still see value in offshore equities and if the Rand should weaken it will provide positive returns for the SA investor.
- Over and above the direct offshore exposures, the portfolios also have exposure to Rand-Hedged equities which will provide protection against a weaker Rand. These companies are listed on the local JSE, but they generate their earnings mainly offshore. These companies include Richemont, British American Tabaco, Naspers and ABInBev to only name a few. The companies provide a natural shock-breaker against a weak local market and currency.
We remain true to our investment philosophy of following a Multi-Manager, multi-asset allocation management approach by diversifying across different styles of management and asset classes in order to provide our clients with a well-diversified portfolio.