Financial Planning & Wealth Management

What returns can we expect over the next 12 months?

Glacier research conducts a biannual survey of top asset managers around the country. Asset managers that participated in the survey results I am about to share include –

These are all excellent research houses who run high quality portfolios. The Portfolio Managers have decades of experience and are supported by large teams of analysts equipped with master’s and PH.D. degrees in finance, economics and engineering.

And yet, they often struggle to beat the market index. This is not to dismiss them, but rather to provide a lens through which to view their thinking. In other words, don’t take these findings and predictions as gospel. We use them as a framework for decision-making.

With that, let’s get into the survey results.

The table below shows the expected returns for local asset classes over the next 12 months.

The table below shows the combined house view with regards to local and offshore asset classes. It also shows the current allocations against the 5-year average, allowing us to see whether they are underweight or overweight compared to historical averages.

Interesting that everyone is underweight SA Equity, despite the consensus being that SA equity will generate the highest return in the next 12 months. In their defense, the underweight position is only marginal – they are averaging a 60.39% exposure to local equities vs. a 5-year average allocation of 63.21%.

The table below shows the thinking on whether the South African equity market (the JSE All Share Index) is undervalued (cheap), fairly valued, or overvalued (expensive).

87.5% think SA Equity is cheap right now. Perhaps this is driving the 12-month return expectation for this asset class.

Since asset managers overwhelmingly believe the local market is undervalued AND that it will give the highest returns over the next 12 months, why would they be underweight? Clearly, there are concerns regarding the longer-term outlook for SA.

The survey also looked at currency.

The currency preference chart below shows the majority of asset managers think the dollar is overvalued and the rand is undervalued. Interesting that all currencies are undervalued against the USD (it’s not just us, and therefore not a SA specific issue).

As long as Jerome Powell (head of the US Federal Reserve) remains committed to his 2% inflation target, the dollar will remain strong.

Market participants are watching the inflation reads closely. As soon as US inflation moves closer to 2%, we will see some weakening in the dollar (stronger rand). The next US inflation data comes out in October.

The outlook for our own currency in relation to the USD, the GBP, and the EURO is shown below.

The bulk of managers see the rand trading at between R17 and R20 to the USD.

The last part of the survey questioned participants on their regional outlook.

Finally, the participants were asked whether they see emerging or developed markets as being the next outperformer. Suffice to say the results were mixed.

If anyone would like the PDF version of the full survey results, feel free to email matthewm@gravitonwm.com.

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About

 MattFin is a blog that focuses on wealth management, investments, financial markets and investor psychology. I build financial plans and portfolios for families and individuals

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