The investment industry has cried wolf by warning you year after year not to expect a repeat of the fantastic returns you have enjoyed since the beginning of the recovery from the 2008 global financial crisis. So much so, that you may now be treating their warnings with some scepticism, Omri Thomas, a portfolio manager at boutique manager Abax Investments, says.
Although this year could be another one in which investors evade the wolf and receive strong returns, the risk versus return trade-off justifies positioning portfolios conservatively, Thomas says.
Thomas manages the Nedgroup Investments Opportunity Fund, which was the top-performing fund in South African multi-asset medium equity sub-category over the year to the end of June, with a return of 21.51 percent.
Thomas says he has trimmed the fund’s exposure to equities, because it is increasingly difficult to find attractively valued shares. He says the valuation model he uses predicts lacklustre returns in the near future.
There is reasonable value in bonds, with yields above 8.5 percent, and he increased the fund’s exposure to bonds early this year, Thomas says.
The fund has no exposure to inflation-linked bonds, which are at expensive levels, because the market is willing to pay a large premium for inflation protection, he says.
The fund has an eight-percent allocation to listed property. It has favoured defensive property stocks with low levels of interest rate risk.
The fund has only a moderate offshore exposure. Thomas says the rand looks cheap, and there is a risk it will stay undervalued, because exports have been devastated by labour unrest and government borrowing continues to balloon.