Juggling your investments in a world of uncertainty

11 December 2016 - 02:00 By Dineo Tsamela
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If one can say anything about 2016, it's that it has been a year full of surprises. For many investors, the panic induced by a volatile rand, political uncertainty, Brexit and the US presidential election has left everyone speculating about what the new year holds.

Witnessing market reactions triggered by global or local events might tempt you to juggle your investments to find a safe haven. This seems the smart thing to do. We've all seen how the price of gold shoots up during or shortly after major events. It happened with Brexit and when Donald Trump won the US presidential election.

Does that mean buying gold is a good idea? Not necessarily. "We've never invested in gold. It doesn't pay you a dividend," says Duggan Matthews, a fund manager at Marriott. "It's also very difficult to value. We prefer to invest in equities that are resilient to inflation."

If you're in search of something slightly safer than equities, emerging-market bonds may seem attractive, but be warned: the yield is low. You can get a 7% or 8% return. However, if inflation is around 6% or 6.5%, the real return is 0.5% to 2%.

"A global investor sitting in Europe, Japan or America - where inflation is very low - would find emerging-market bonds attractive because the real return is so much bigger in terms of the yield," says BayHill Capital MD Geoff Blount.

So it seems that equities are still your safest bet. But choosing which listed company to invest in can be tricky. One way to ensure that you're more or less protected from currency fluctuations and inflation is to invest in companies that make or provide basic consumer goods, especially multinationals.

"The best equities to be exposed to are those of multinational companies that provide consumer basic necessities," says Matthews. Tiger Brands or Pioneer Foods, for instance, are exposed to growth opportunities beyond South Africa's borders and are highly unlikely to be disrupted by technology because they provide basic consumer products, unlike tech companies.

Matthews says it's best to position your portfolio so that you benefit both from the increase in consumers and the relative resilience of consumer stocks among ever-changing technologies. "It's important that we hold our stock and we're not distracted and drawn in by the headlines."

Another way of protecting your investment is to select multinational corporations, such as Steinhoff, which can offer rand-hedge qualities. The other benefit is that you're sheltered from inflation because basic consumer product prices usually rise with inflation.

Consumer-based companies are great because they are resilient during inflation. "The earnings and dividends, to a large extent, are hedged longer term to inflation because they are able to pass on their rising costs to the consumer," says Matthews.

When consumers cut down on spending, they usually cut out luxuries. It's highly unlikely that people will stop buying basic toiletries.

Blount says that investing in local small to medium-sized companies is a good idea. Most of the market is expensive, but "if you look at small- and mid-cap shares, those are very attractive. I'd favour equities but not big, headline shares."

He adds that property has been performing well for a long time, and sustaining those returns may be difficult. "I think that there's so much supply coming in from property that it's so hard to keep their earnings or income growth up. "

Matthews' advice for investors is: "Don't try to forecast what's going to happen - you won't know. Have a fundamental strategy in place, stay the course and you'll do fine."

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