While 2021 was a strong year for investors, we still see opportunities for those who get started this year.
If you are not yet an investor, consider making 2022 the year that you become one. Just be mindful to think long-term as investment returns never come through in a straight line.
In 2021, investors in funds with longer-term investment horizons did well, seeing their returns increase by double digits in nominal terms. This translated into real (after inflation) returns that were above average. For context, the JSE All Share Index returned 29.2% for the year - its best year since the post-recovery year in 2009 and well above the 16.1% median return over the last five decades.
But given the elevated levels of exuberance in market prices, equities (the key building block in funds with longer-term investment horizons) may not have such a good year ahead and, as such, we believe that investors should curb their return expectations for 2022.
This doesn’t mean that the investment opportunities for long-term investors have dried up. The reality is that investment returns never come through in a straight line and it’s wise to start your investment journey sooner rather than later.
Here’s where we are still finding opportunities
We still see the best opportunity for risk-adjusted returns in the domestic markets for the next few years. There are opportunities in SA bonds, equity and property in 2022 and beyond. Of course, there are always stock-picking opportunities globally, but we don’t expect the indices to do well. (You can read more about our domestic equity views here, or look out for our detailed fund commentaries that will be published on our website later this month.)
South African government bonds were the top-performing sovereign debt market in the world last year and continue to offer attractive yields, especially at the long end of the yield curve. While policy interest rates are likely to increase this year, short-term interest rates remain low, and we continue to caution that investors in income funds should expect more muted returns going forward.
Selective opportunities in emerging markets but global equities and bonds are expensive
Within global emerging market equities, following the souring of sentiment towards China, the prospects for superior future returns from high-quality companies with attractive growth prospects and undemanding valuations have increased.
However, we expect anaemic returns from global bond and international equity indices going forward. Our view was that global markets were already quite full before the pandemic, yet the S&P 500 Index has risen by more than a third since then. Global bonds declined in US dollar terms in 2021 and the asset class remains unattractive in our view.
Returns will not come through in a straight line
While 2021 may have been a difficult year to even consider embarking on an investment journey, the best thing that you can do with any spare savings is to start your investment journey sooner rather than later.
Key to being an efficient and successful investor is ensuring that you are invested in the right fund for your needs, which will enable you to embrace the uncertainty to benefit from the inflation-beating returns whenever they may transpire.
To start your investment journey in one of our top-performing funds, visit https://www.coronation.com/en-za/personal/invest-sooner/.