What can be realistically expected from the markets over the next 12 months…

June 2014

By Melissa Dyer

At Harbour Wealth we firmly believe in putting our clients, in the best possible situation, whether it be investment, retirement planning or insurance related. We don’t believe we know everything, and are happy to borrow freely shared ideas about future market expectations from asset management companies who commit big budgets and teams of investment professionals to the cause. After all, it’s not always about how you come up with the information; the most important aspect is how this can benefit our clients. We strongly believe in the merits of blending active and passive investment styles. We can ‘buy’ the conventional wisdom of the markets through passive index funds or exchange traded funds, and then happily pay up for true, proven, alpha that some active managers have been very successful in achieving over sustainable periods of time. This way our clients benefit from lower fees and diversification across asset classes, equity sectors, fixed interest instruments, investment managers and investment styles.

After running a market consensus report across 12 South African asset managers and one international player, the median expected consensus annual returns are as follows.  (See table below, second column)We compared them to what the market has returned each year over the last 10 years, and across the board you can see that lower returns are expected, given the spoils we have recently enjoyed!

ASSET CLASS Expected 12 month Return 10 Year Annual Average Return
SA Equities 10.0% 19.0%
SA Listed Property 9.3% 22.0%
SA Bonds 7.3% 9.0%
SA Cash 6.0% 6.6%
Global Equities in $ 10.0% 12.0%
Global Listed Property in $ 7.5% 21.0%
Foreign Bonds in $ 3.0% 9.0%
Foreign Cash in $ 0 achat de cialis en suisse.2% 0.5%

This again highlights the importance of reducing your costs. If you just take local equity as an example, over the last 10 years, you have received an annual average return of 19%. Meaning if you have had to pay away 2 to 3% in fund management costs, you were still pocketing a healthy return of 17 to 18% every year. Going forwards the consensus view is for the total return to be 10%, suddenly giving up 2 to 3% to fees drops your return to 6 to 7%, and that’s before you’ve paid the tax man, the administrator and your financial adviser.

Given that the local equity market has already returned over 12% year to date, we do expect a bit of a bumpy ride over the next few months. This doesn’t mean you should hide your cash under your mattress, as the market pulls back it offers you the chance to enter at a reduced price… but this is heavily dependent on your risk profile, how much risk you are willing to take to achieve your desired investment outcome, and your investment time horizon. The longer you have before you need to access your money, the more ‘risky’ growth assets you can include in your investment portfolio as you have time on your side to ride out the volatility.

Please feel free to contact our team to discuss any aspects of this article further, we hope somewhere along the line we made you think about your own investments and retirement planning. After all knowledge is power.

Looking forward to hearing from you soon!

The Harbour Wealth Team