Here are a few pointers to consider when it comes to allocating some of your assets to international investments.
Investing offshore is not a single event, it’s a journey
Closely associated with weak domestic confidence this year has been the debate about the appropriate allocation to international assets. With much better returns from global markets – especially US equities – over the past decade, you often hear the argument that you should sell all your local investments and only invest offshore. This is a sentiment-driven view that assumes that the future will play out exactly as the most recent past. A more reasoned response is to implement a well-considered long-term investment programme, informed by your own circumstances, that appropriately diversifies your risks across jurisdictions, geographies, sectors and companies.
It’s easier to achieve your desired result if you remain committed
The more time you give your investment to grow, the more likely you are to do well as a result of both market outcomes and the value that can be added through active management. However, many South African investors do not invest for long enough to experience the full benefit of staying the course in their long-term investment programme. The average unit trust investor holds their investment for less than the recommended five-year minimum investment period before withdrawing. This is largely due to our instinctive urge to ‘act’ in response to recent market or fund outcomes. Constantly selling the most recent losers and buying the most recent winners is a near-certain way to achieve less than optimal results.
It’s easier to remain committed if you invest in a multi-asset fund
Investors who make their own asset allocation decisions may find that it is difficult to make consistently good decisions over time. They may be tempted to switch into or out of an asset class at the wrong time for emotional reasons.
Good asset allocation often requires you to do the opposite, as you tend to achieve better results when you sell after a period of above-average returns (as prices have gone up) and buy after a period of below-average returns (and prices have fallen). Yet it is a skill that requires considerable experience and discipline. So, it makes sense to leave it to the professionals who spend every day focused on identifying the best long-term opportunities available in global markets.
By giving your fund manager a broader mandate by way of a multi-asset fund, they also have more tools at their disposal with which to achieve your desired result.
There will be good years and bad years, and no one knows the sequence
Local and global risk assets performed poorly in 2018, with local equities down 8.5% in rands, while global equities returned 5.0% in rands (-9.4% in US dollars). Conversely, 2019 has been a good year for risk assets, with local equities up 9.2% in rands and global equities up 25.9% in rands (up 22.9% in US dollars) for the year to date. Yet many investors continued to invest conservatively, as though they were still experiencing 2018 returns, thereby missing out on the more recent strong returns from both local and global equities.
But it isn’t advisable to try to time the markets or switch between asset classes to capture returns in the short term. The good news is that you don’t have to implement regular extreme portfolio movements to get the best results. When investing in a multi-asset fund, you may not capture all of the market upside in any given year, but over time, the highs and lows smooth, and you benefit from positive returns across asset classes while spreading the risk of possible underperformance in any one asset class. The smoother path makes it easier for you to stay the course over the long term.
Two decades of disciplined, multi-asset investing
We offer three multi-asset funds for investors who want more international exposure as part of their long-term investment programmes. The funds have track records ranging between 10 and 20 years and allocate across all or most assets to international investments, while remaining easy to use and access, as they are established in South Africa.
Coronation Optimum Growth has the longest track record and the ability to invest anywhere in the world and in any of the listed asset classes. The fund benefits from our wide research coverage across local, developed and emerging markets. It, therefore, is a sound multi-asset class solution for long-term investors not subject to retirement fund investment restrictions, and who are looking for a larger exposure to offshore assets but still require their fund manager to decide on the allocation between domestic and foreign assets.
Since inception in March 1999, the fund has delivered a return of 14.4%* p.a., outperforming global equities with significantly less volatility. The benefit of wider diversification and judicious portfolio management is reflected in the outcome that this return was achieved at significantly less downside risk than both the local and global equity markets.
To read more about giving your money access to the best opportunities globally by visiting Coronation Offshore. DM
The information contained in this article is not based on the individual financial needs of any specific investor. To find out more, speak to your financial adviser.
Coronation is an authorised financial services provider.
*Returns are quoted as at end-October 2019. For more detail about this fund, please download its comprehensive factsheet here.