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Asset Allocation 2Q20

09 April 2020

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by Anchor

Asset class Anchor’s asset allocation (AA) recommendations at the start of 2020 (for 1Q20) The current AA of an investor, who followed Anchor’s AA recommendations at the start of the year after 1Q20’s market turmoil* Anchor’s AA positioning recommendation for 2Q20 Comments
Domestic
SA Equity Neutral Extreme underweight Neutral We are looking to gradually increase exposure over the next few months, with the focus being on specific shares.
SA Bonds Overweight Extreme overweight Overweight Real yields continue to be extremely attractive but, given relative moves, we are looking to reallocate some outperformance to other asset classes. Nevertheless, this is still one of the more attractive asset classes on a relative basis.
SA Property Neutral Extreme underweight Neutral We are considering gradually increasing exposure back to neutral over the next few months, with the focus being on specific shares (allowing for the very fluid situation in the sector and potential changes in the regulatory environment to settle).
SA Cash Overweight Extreme overweight Underweight Relative outperformance has taken cash to an extreme overweight position, but as local SARB rates drop the relative attraction of cash has decreased – we are looking to deploy into risk assets over the next few months.
Total Overweight Underweight Overweight The extreme rand moves have left domestic assets underweight on a relative basis and we are looking to get back to overweight domestic assets over the next few months at a currently attractive exchange rate.
Global
Global Equity Neutral Overweight Neutral Extreme rand moves and a relatively less extreme offshore equity sell-off (vs SA equities) have left this asset class slightly overweight on a relative basis, we are looking to take some profit and redeploy into domestic assets over the next few months.
Global Bonds Underweight Overweight Underweight Extreme rand moves and global central bank action have seen this asset class outperform substantially on a relative basis, but with record low yields on an absolute basis (and relative to SA yields) we’re looking to take profit here and redeploy to more attractive domestic opportunities. Within this asset class relatively better opportunities exist in corporate bonds vs government bonds.
Global Property Neutral Underweight Neutral We are considering gradually increasing our exposure back to neutral over the next few months.
Global Cash Neutral Overweight Neutral Extreme rand moves and global central bank action have seen this asset class outperform substantially on a relative basis, but with record low yields on an absolute basis (and relative to SA yields) we’re looking to take profit here and redeploy to more attractive domestic opportunities.
Total Underweight Overweight Underweight Extreme rand moves have left offshore assets overweight on a relative basis and we are looking to get back to underweight offshore assets over the next few months at a currently attractive exchange rate.

 

General comments

  1. Our general approach is to use the extreme moves in the market as an opportunity to gradually add to risk assets at attractive levels over the course of the next few weeks and months. This will almost certainly be the right thing to do for long-term investors.
  2. As with most crises, we completely expect to emerge on the other side of the COVID-19 crisis with winners and losers, while the above constitutes broad guidance at an asset class level, we expect many of the most meaningful opportunities to present themselves below that, at a company level.
  3. Given that uncertainty remains at heightened levels, many of the most attractive opportunities are presenting themselves where there is the most uncertainty (and, as such, where we expect some of the biggest moves to occur over the short term – both positive and negative).

*If an investor was neutral bonds and equities at the start of 1Q20, but because of the 1Q20 market crash such an investor is now overweight bonds and underweight equities, then the second column is a reflection of what has happened to such an investor’s portfolio during 1Q20 – i.e. if an investor followed Anchor’s asset allocation at the start of the year and positioned themselves as per column 1, that investor’s asset allocation is now reflected in column 2, due to the extreme market moves because of COVID-19. For 2Q20, our asset allocation recommendation is as per column 3. This will require some action on the part of the investor. As an example, if an investor currently has an extreme underweight position on SA equities, we suggest that such an investor gradually buys more SA equities in order to get the asset allocation of their portfolio back to our neutral recommendation – thus, column 3 is our asset allocation recommendation as to how an investor should be positioned in 2Q20.

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