South African investors remain wary of equities, even though the share market has rebounded strongly after its last slide bottomed out a year ago, unit trust company Stanlib said in a statement on Thursday.
Stanlib reached this conclusion after its regular face-to-face sessions with investment advisers nationwide.
“The consensus is that equities remain a hard sell,” said Stanlib’s director of retail investing, Paul Hansen.
In South Africa, 37% of wealth held in unit trusts is in collective investment schemes linked to the money market — way above the world norm.
Support for this type of fund increased over the past year.
“It’s unfortunate because these nervous investors have missed the equity upturn, which began at the end of last April, resulting in gains of 50% plus in some sectors. But it’s also understandable,” Hansen asserted.
He explained that up to last year, equity investors suffered “five crashes in six years”.
“We’ve seen wars, Sars [severe acute respiratory syndrome], terror events, the dotcom bomb, the emerging markets crash in Asia — typical turn-of-the-century tumult.”
He said that while he sympathised with these views, now is still a fair time to invest in equities. Caution is needed, however, as the local stock market as a whole is currently a bit overvalued. Nevertheless, equities offer better returns than the alternatives of fixed-interest investments.
According to Hansen, select value is still available to astute stock pickers, with potential especially evident in financials in view of chances for good dividends and earnings growth.
Last year’s tip of tilting toward industrials has been superseded by a suggested tilt towards resources, a shift suggested by the fact that one industrial fund has already grown 45% in 12 months.
Hansen noted that a money market return of 7,4% converts into 4,5% after a 40% adjustment for tax.
“That’s about the return Stanlib is expecting from financial share dividends, but with the chance of capital growth and improved portfolio balance on top.”
Stanlib advises that one should be underweight in bonds, neutral on listed property and income funds and neutral to underweight in cash.
“One solution for investors fearful of losing money in equities is to invest in a lower-risk type of fund that has some limited equity exposure, such as a multi-manager low equity fund, that has some 27,5% in equities and the balance in fixed interest, including money market, bonds and property income funds.
“If equities keep on advancing this fund has a nice little kicker. If equities fall, the 72,5% in fixed interest usually tends to act as a safety net.” — I-Net Bridge