Kim Deane is an investment specialist with 10 years of investment industry experience.

Why investing long term in multi-asset unit trust funds means never having to ask yourself this question

Investment Specialist, Coronation Fund Managers

The investment adage ‘buy low, sell high’ may be a sound investment principle, but, for investors, it still implies some form of market timing, which is fraught with risk. If you are one of those investors currently asking yourself if you are too late and have missed the recent bounce back in the South African (SA) equity market, then read on for some insight on why time in the market is a better long-term strategy than timing the market.

‘But I stuck it out in the local market for years with disappointing results’

Besides the rollercoaster ride of 2020, the local equity market disappointed in 3 of the previous 5 years. Although many investors stuck it out over this period, the trend to switch down the risk curve accelerated with around R100 billion net of investors’ money flowing out of long-term focused portfolios to take cover in very conservative funds that only invest in fixed interest assets or cash.

As the low return environment continued for an unusually long period, those that had derisked felt increasingly vindicated as conservative income and high yield solutions continued to outperform funds with exposure to local equities.

But there are always two parts to the trade if you intend to time the market, and you need to get both right

You need to get out of the market before it plateaus or trends downwards, and get back in close to the bottom to participate in the subsequent upside. However, the market tends to turn when you least expect it, and if you are not exposed, you simply can’t reap the rewards.

Who would have thought in the height of a global pandemic and international lockdowns, with economies grinding to a halt, that our market would start a breathtaking rally? As such, those who capitulated or were unable to remain invested during that time unfortunately missed out on an exceptional, retirement-changing opportunity.

Sometimes, investing for the long term requires grit

As an investor, you want your money to work as hard as it can for as long as possible and be exposed to the best growth potential over time. Leaving your money invested over multiple decades enables it to comfortably withstand the effects of these inevitable periods of market volatility.

But looking beyond the challenges of today to keep thinking long term is easier said than done, especially during a global crisis.

A simple, manageable approach helps you to stick to your financial goals over time

One way of avoiding having to make those short-term ‘buy low, sell high’ decisions is to choose a multi-asset unit trust fund, where skilled investment professionals manage your money and make investing decisions on your behalf. They identify the best long-term opportunities available for you across different asset classes and reposition the portfolio as circumstances change. There is comfort in investing in a multi-asset fund, as it has a broader mandate and more tools at its disposal with which to achieve your desired result.

So, have I missed it?

Coming back to the question of whether it might be too late to be exposed to the SA equity market, we do not think that investors have completely missed the recovery opportunity. And here’s why:  

  • The SA equity market is offering value
    When assessing value, it always comes down to stock specifics rather than overall market levels. Some businesses have done very well over the recent past yet still offer value for investors - select miners and Naspers are examples. There are also shares that have continued to underperform and are priced well below their intrinsic value, such as British American Tobacco.

    But what about risk? Even if you agree that the local equity market is cheap, you may be concerned that you are taking on an unacceptable level of risk by investing your money in locally listed businesses given the underlying economic challenges. But remember that most of our market derives its income from outside of SA. When investing in these names, you are actually getting global exposure. They just happen to be listed here.

    There are also a few SA inc. names (companies that rely on the local economy and consumer) that offer value. We currently prefer companies with defensive earning streams that don’t depend on a turnaround in SA fundamentals to continue to do well, for example the food retailers like Shoprite.

    So, even after the strong performance in our local equity stock picks, we still see significant upside potential.
  • In this low interest environment, it’s better to invest in growth assets than to hold your money in cash or cash-like investments.
    Investing in assets such as equities through a multi-asset unit trust fund not only protects your money from the eroding effect of inflation, but can grow your wealth over time through the power of compounding. With cash interest rates around 3.5% at all-time lows, the probability of beating inflation in the more conservative asset classes are near impossible.

So, is it too late to be exposed to the SA equity market?

We think not. A great starting point is to choose the right multi-asset unit trust fund that suits your long-term objectives, regardless of the point in the investment cycle. Then sit tight and stay the course.

Kim Deane is an investment specialist with 10 years of investment industry experience.

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Be without fear in the face of your enemies. Be brave and upright that God may love thee. Speak the truth always, even if it leads to your death. Safeguard the helpless and do no wrong. - A Knight’s Oath

Together with the attractive opportunities we are finding in global fixed income markets today, we believe Coronation Global Capital Plus offers a compelling collection of assets suited to the needs of conservative international investors.

In the short run, the market is a voting machine, but in the long run, it is a weighing machine.