Over the very long term, South African equities have delivered better returns than any other market in the world. However, the past decade has seen domestic equities deliver annualised real returns (i.e. in excess of inflation) of less than 5% per annum. Returns over the past three years in particular have been diminished.

We believe the most recent underperformance by equities does not reflect what investors can expect over the next ten years. As local equities have sold off, valuations have grown more attractive and many local stocks now offer more value than at any point over the past five years, in our view. Fundamentals should prevail and investors should be rewarded for taking risk over the next ten years. In our view, local growth assets (equities and property) will deliver real returns in line with their 10-year averages (see Figure 6). Equities also provide the opportunity for competent active fund managers to enhance outcomes by generating outperformance over the market.

Global equities continue to offer strong opportunities for investment growth, and our portfolios have exposure to what we believe are some of the most exciting companies in the world. Some caution is, however, required. The current bull market on Wall Street has now run for more than eight years, the second-longest in modern history. Accordingly, we have reduced our global equity allocations and have added downside protection to our funds.

In terms of income assets, we have a negative view on global government bonds. These assets are hugely distorted as a result of quantitative easing and we believe the recent correction in the 35-year bond bull market is only the tip of the iceberg. We expect local income assets to produce returns in line with the past decade.

>> FIGURE 6: 10-YEAR FORECASTS FOR LOCAL AND OFFSHORE ASSET CLASSES