2017 was a great year for investments and our clients’ investment portfolios delivered returns between 11.93% and 15.3%, thanks to strong growth in the second half of the year.
The first quarter of 2018 has however been very volatile and negative as our local investment markets came under severe pressure following world markets into negative territory as investors considered the implications of the removal of quantitative easing and normalisation (increase) of US and world interest rates. The risk of a trade war between the US and China and the instability in North Korea also added to the uncertainty. Continued Rand strength (4.5%) during the first quarter also meant that the negative returns earned on the Fund’s global assets were made worse. The shining light over this first quarter has been bonds which have generated a return of around 8%! The Fund’s cash exposure also generated a small positive return.
The extract below demonstrates how asset class returns have come under severe pressure over the quarter but delivered strong performance over the longer term (5 years plus).
|
|
Quarter | 1 year | 3 years | 5 years |
| Local equities | -5.97% | 9.60% | 5.05% |
10.02% |
|
Local Bonds |
8.06% | 16.23% | 8.65% |
7.72% |
|
Local Properties |
-19.61% | -7.09% | -0.48% |
7.11% |
|
Cash |
1.59% | 6.79% | 6.58% |
6.03% |
| Global Equities | -5.7% | 0.1% | 7.0% |
15.3% |
Our funds have a diversified investment strategy that aims to minimise volatility for all members and uses a Life Stage model to protect members closer to retirement from losses shortly before they retire
Whilst it is never comfortable when members’ retirement savings earn negative returns; we do expect this to happen from time to time. As a result the Fund’s investment strategy is structured to be diversified (so that members are exposed to various asset classes such as local and global shares, bonds, property, cash and others) in order to minimise the risk and size of any downturn in a particular asset class. The Fund also makes use of a life stage model, whereby members are switched to lower risk investment strategies as they approach retirement. This protects members from suffering severe losses just before they retire.
As a result of the fact that almost all asset classes, but for bonds and cash, have delivered negative returns over the quarter, all investors (locally and globally) that are invested in growth portfolios have suffered losses. These losses are understandably concerning for members but unavoidable if members are investing for long term growth. In volatile times like these it is important that members do not focus only on the very short term pain but remember the longer term gains that have been enjoyed. Members have benefitted from reasonable growth over the last 5 years, despite the negative returns over the last quarter.
Before making any rash decisions regarding their investment strategy, members should consider that:
Sticking with your long term investment strategy is usually the best investment strategy.