Where to from here for markets?

It is important to re-assess portfolio positioning after the significant rise in market sector performance, particularly when one understands that over 90% of investment performance comes through asset allocation. Meaning the decision of which sectors of the markets to invest (say equities vs bonds) and which geographies (local vs offshore)
Some of the underlying themes which are driving markets include:

• Low real interest rates which can described in terms of financial repression – meaning governments around the world are holding as they attempt to stimulate economic growth.
• Significant monetary stimulus again as governments try to ignite economic growth.
• The medium-term threat of rising inflation caused through over stimulation.
• At the margin, the shift away from passive to active style investment management.
  Active vs passive styled investment

Passive investing can be described as a low-cost entry into markets, particularly in more efficient markets and where it is difficult to identify skilled active managers.
PSG Wealth prides itself in our ability to identify active managers who have demonstrated consistent sound investment performance of the long-term which is delivered in a cost-effective manner.
An active investment manager seeks to add value at two levels – firstly in asset allocation and secondly in underlying counters, be they equities, bonds etc.
Over the past 20 years there has been a massive shift away from active to passive investment styles – the result is that markets have become increasingly concentrated and consequently less efficient. This shift has created opportunities for active managers who have sound and consistent investment styles. The present shift is also tending to favor investment managers who have a stronger value style of investment.

But the big question is: Where to from here?
It is illustrative to view sector return expectations of one of our top South African investment managers, Coronation Asset Managers, taken from their April ’21 update.

Expected return targets over the next 3 to 5 years

Our consistent message to clients is to have a financial plan which is aligned to your risk tolerance and long-term goals then stick to this plan and do not try to double guess the short-term direction of market returns.

The opinions expressed in this document are the opinions of the writer and not necessarily those of PSG and do not constitute advice. Although the utmost care has been taken in the research and preparation of this document, no responsibility can be taken for actions taken based on information in this article. Always remember the prudent way is to consult your portfolio manager before investing. PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728