INVESTING
31 August 2020
CHRISTO LINEVELDT Investment Specialist, Coronation Fund Managers
Do not underestimate the value of active asset allocation in crisis times
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t’s hard to believe how dramatically 2020 has changed our lives, in some ways permanently. Financial markets have already seen their quickest sell-off and subsequent recovery to date, yet the economic outlook remains murky. It is not surprising that investors are left asking, “What’s next?” However, we continue to believe that a disciplined commitment to long-term valuation-based investing, coupled with deploying an appropriate risk budget, remains the correct approach. The former is what we as asset managers focus on every day on behalf of our clients; the latter is what investors need to decide in the process of selecting the right mandate for their needs. Beating inflation However, one of our key take-outs is that now, more than ever, inflation protection should be a priority when constructing long-term investment portfolios. This may require investors to take some action by reviewing their current asset allocation and ensuring they are invested in an actively managed, welldiversified multi-asset portfolio. Prioritise real assets To protect against the risk of inflation, real assets (see text box) should form the cornerstone of an investor’s portfolio. To gain exposure to these assets, they need to be invested in a fund with a mandate that allows exposure to the most appropriate combination of real assets and longer duration income assets, given their ability to take risk. With the impact of multi-decade low interest rates (that are still decreasing) on cash returns, many investors who have de-risked their portfolios over the last five years, or who may have invested too conservatively to begin with, need to consider
How do we define real assets? Real assets consist of growth assets such as equities and property (businesses with pricing power that can grow earnings at or above inflation) or inflation-hedged asset classes such as inflationlinked bonds and precious metals. taking action to increase the risk in their portfolio to an appropriate level. Do not underestimate the value of active asset allocation in crisis times Asset allocation is the most important decision you make when investing. While significant value can be added by focusing on the selection of individual securities, it is critical to have appropriate exposure levels to specific risk drivers and to blend different assets together in a way that increases the probability of optimising your outcomes. The de-risking trend favoured by many South African investors can have a profound impact on
long-term investment outcomes if left unchecked. By moving their portfolios out of multi-asset funds and into low-risk cash-heavy alternatives, investors have effectively assumed the asset allocation responsibility themselves. This means they need to make the second leg of the timing decision – when to re-risk– themselves. But market timing is a very risky strategy and during crisis periods, elevated volatility levels mean that market prices move rapidly. Much like the GFC, the current crisis has required us to implement dynamic and meaningful active asset allocation decisions on behalf of investors in our multiasset funds. We fully expect to continue making meaningful asset allocation changes in the months and quarters ahead. An example of the benefits of active asset allocation and security selection can be found in the track record of Coronation Balanced Plus, our flagship multi-asset fund aimed at those saving for retirement within the pension system (via a Retirement Annuity, Pension or Provident Fund). The chart illustrates the average monthly return of the Coronation Balanced Plus versus the JSE All Share Index (ALSI), as well as the specific outcomes during up and down months. With the Fund delivering roughly three-quarters of the upside of the ALSI, but only half of the downside, it was able to provide a return slightly ahead of the market, but with significantly lower volatility. It is this asymmetrical pay-off (more of the upside and less of the downside) that adds significant value over time and makes a well-managed multi-asset fund an enduring cornerstone of any investment portfolio. For comprehensive fund information, please download the minimum disclosure document from coronation.com
JSE lists first China-focused ETF
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he Johannesburg Stock Exchange (JSE) last month listed its first China-focused Exchange Traded Fund (ETF), the Satrix MSCI China ETF. This ETF will track the MSCI China Index, which will provide investors access to the broader Chinese equity market. The Satrix MSCI China ETF offering exposes investors to an array of Chinese industries, ranging from online commerce, financials, communication services and many others.
NEARLY 20 YEARS AGO, SATRIX BECAME THE FIRST TO LIST AN ETF ON THE JSE “Our global ETF range has been very popular with investors seeking to diversify their portfolios,” says Helena Conradie, Satrix CEO “We track the
MSCI World, MSCI Emerging Markets IMI, S&P 500 and Nasdaq-100 indices. The investor interest in the initial public offering for the Satrix MSCI China ETF has far exceeded our expectations – it is the most successful IPO since the Satrix 40 launched in November 2000.” The listing of the Satrix MSCI China ETF adds one more thing for the JSE to celebrate this year in the ETF
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space, as the exchange observes the 20th anniversary of ETFs listing on the JSE, and ETFs recently surpassing the R100bn market cap, which is a great milestone for the sector and investors. “With global markets experiencing increasing volatility, ETFs provide alternative investment options with varying diversification, hence we are thrilled to add the Satrix MSCI China ETF to our mainboard,” says Valdene
Reddy, Director of Capital Markets at the JSE. “This new ETF really extends the growing presence of ETFs on the JSE, offering investors an increasingly wider ETF selection to choose from. Nearly 20 years ago, Satrix became the first to list an ETF on the JSE and today the ETF market is an integral part of many investors’ portfolios,” she adds. With 75 ETFs now listed on the JSE, the bourse continues to be a pioneer in the investment field by providing innovative and diverse investment options for the benefit of retail and institutional investors.
Helena Conradie, CEO, Satrix
