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Uncertainty continues to be one of the greatest driving forces behind world markets at the moment.
When certain shares shine brightly, investors tend to become blind when it comes to determining actual fair value, while they find it hard to see anything good when markets and politics enter darker times.
The media isn’t exactly helping with investors’ confusion. I see it daily on television programs where local investment institutions air their opinions.
One moment negativity reigns supreme in light of political unrest combined with high gradings worldwide, and consensus states that we are nearing the end of a bull market.
The next day, however, one or two pieces of positive data get published and suddenly everyone becomes optimistic while the bulls get to live another day. No wonder investors have reached a crossroads with absolutely no idea which direction to follow with their investments.
In spite of all the noise, however, it is not what you say, but what you do as an investor that really matters, and this is why it’s always a good idea to have a look at what other investors are doing before you act.
One example of a good investment aid is to have a look at the five largest local flexible funds’ activities (funds permitted to invest in all asset classes).
The biggest attraction of these funds has to be the comprehensive nature of their mandates. I feel that this is where fund managers’ abilities as all-rounders get tested. These funds are flexible for two reasons.
First, they are not restricted to only one asset class and they are free to invest in shares, bonds, the money market and property shares, both locally and offshore.
Second, there are no restrictions in terms of allocations to asset classes, meaning fund managers in this sector can literally invest anything from 0% to 100% in one specific asset class if they want to. This means that if the fund’s mandate allows it, fund managers can invest 100% in shares if they feel positive about shares and 0% when they have a negative outlook on shares.
When we look at these five funds’ returns over the past five years, and especially the last three more challenging years, their success is quite surprising.
Together, these five funds have a combined market capitalisation of R28bn, which means that their activities are worth noting.
These activities can be monitored by looking at the asset class movements within the funds. This data is made available monthly via the fund managers’ fact sheets which clearly indicate their activities within a specified period.
Their preference towards shares, which is divided between local and offshore equities, makes things quite interesting.
The data shows us that they were still quite optimistic about shares three years ago with an average weight of 73.4% allocated to local and offshore equities.
With the local rising interest rate environment and the added threat of interest rate hikes internationally, things changed in that the average allocation to shares dropped down to 68% last year.
What’s also interesting is that while the rand was weakening severely, these funds on average didn’t fear the situation, but instead used the opportunity to increase their exposure to local shares, while decreasing their exposure offshore at the beginning of last year.
The most recent data at our disposal shows that these funds have since increased their exposure to shares in general since last year, now trading at an average of around 73% combined.
The top 10 shares that can be found within these five funds, according to popularity, are:
• Naspers*
• Old Mutual
• British American Tobacco
• Barclays Africa
• Discovery Health
• FirstRand
• Sasol
• Glencore
• Anglo American
• MTN
I know that there is still a great amount of uncertainty surrounding our local market and it definitely doesn’t come without risk, but don’t let your emotions get the better of you.
The experts out there are seeing more and more investment opportunities. Maybe it’s time that we follow suit.
*finweek is a publication of Media24, a subsidiary of Naspers.
Schalk Louw is a portfolio manager at PSG Wealth.
