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By Sonia du Plessis, CFP®*
After what has happened in the past 18 months, you might think only a fool dares to make predictions on what the future holds and where investors can find promising opportunities.
Yet, here I am, crystal ball in hand, looking at what the rest of the year holds for investors.
I’ve made it a little easier for myself by concentrating on investment themes rather than specific opportunities. These themes have been identified and researched by our team at Brenthurst, after which we partnered with fund managers who share this view so that we can offer our clients the most appropriate solutions.
With that in mind, in what remains of the year, here’s where we see opportunities that clients could leverage to maximise their returns.
1. Offshore still offers compelling opportunities
This is an evergreen theme for us simply because offshore markets offer a far greater universe of investable stocks compared to what’s available locally.
Yes, there’s a chance the rand will strengthen in the short term, but its long-term trend is to continue weakening. For this reason, and because rand-denominated offshore funds fluctuate with the exchange rate, we believe you shouldn’t measure growth in rand terms.
In fact, I encourage younger clients with a higher risk tolerance to have the bulk of their liquid money in offshore markets.
For retired or lower-risk investors, I advise them to have offshore exposure, but to also include some local bonds and cash in their portfolio for local liquidity. I’ve found that income funds are a solid option in this regard, although I suggest sticking to multinationals if SA counters are included in this mix.
2. The Asian giant awakens
It should come as no surprise that China’s influence in global markets is rising. This was confirmed most emphatically in July when BlackRock announced that it was treating China as a standalone market rather than lumped with emerging markets.
Anyone watching global markets and news will be aware of the so-called tech crackdown that aims to quell monopolistic behaviours. That is a developing situation that needs to be taken into account when weighing China risks, but I see far greater upside potential.
The country’s population, for one, harbours a great number more families that will be lifted out of poverty in coming decades. This growing lower-middle class is sure to accelerate the already strong consumer-led influence on the economy.
So, in short, it might not be perfect, but one cannot ignore China.
3. Green shoots taking hold
As I noted in an article earlier this year, ESG is expected to continue as one of the hottest investment themes this year.
The alarming findings released earlier in August by the Intergovernmental Panel on Climate Change (IPCC) are sure to spur governments and public and private institutions toward greener futures.
The main headline from the report, in case you missed it, was that climate change is accelerating faster than had been predicted. We do, however, can reduce our impact on the natural environment if the right action is taken.
Back home, companies Like Ninety One and Old Mutual are truly making an effort to include ESG into their funds. South Africa however still has a long way to go, from where our developed market counterparts are, in terms of really making ESG part of their business. The good news however is, that this is a trend that will only improve. At Brenthurst we are keeping our eyes peeled on this subject.
4. Out of the box funds
We’ve adopted the term ‘out-of-the-box’ to encapsulate themes that we see as perfectly placed to benefit by virtue of the future impact their industries and sectors will have.
Take the likes of robotics, AI, genomics, cloud computing, cyber security and future transport. These are all near-future technologies or developments that are going to reshape societies of the future.
Clients interested in this theme would benefit from Sygnia’s newly launched Itrix Solactive Healthcare 150 ETF, Sygnia’s Health and Innovation Fund as well as its 4th Industrial Revolution Fund. Brenthurst also has a couple of US Dollar denominated funds we use, that focussed on this type of theme.
5. Shift to Value style investments
The final theme that I believe is worth noting is the performance of value stocks. The shift to value was visible in the immediate aftermath of the market correction in March 2020 and is a trend that we believe will continue under current market conditions.
Veteran fund manager John Biccard, for one, believes this is not a passing fad but the start of something bigger. This is notable given his pedigree as a value-investing pundit.
For our clients, we’ve been using the Counterpoint Value Fund that offers exposure to companies at a discount to intrinsic value and other mispriced assets. South African market still has pockets of potential growth, and we believe that Value funds will take advantage of this.
As always, the golden rule of investing is applicable, diversification is key, include some of the above into your portfolio, but it is never a good idea to have all your eggs in one basket.
I can only hope that this quick glimpse into my murky crystal ball sparks some ideas for you to follow up on. It’s practically impossible to foretell the future, but we believe that investors will only benefit by getting early exposure to tomorrow’s leading trends.
- Sonia du Plessis is Head of Brenthurst Wealth Stellenbosch. [email protected].
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