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THE NAVIGATOR – ANCHOR’S STRATEGY & ASSET ALLOCATION, 4TH QUARTER OF 2019

14 October 2019

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by Anchor

The purpose of The Navigator is to provide our clients with insight into Anchor’s thoughts on different asset classes and our near-term market outlook.

A year ago, markets were expecting the US Federal Reserve (Fed) to deliver one more rate hike for this cycle. However, since then, trade wars have impacted global trade and market sentiment with the Fed having to reverse course, cutting rates twice in the past two meetings and markets pricing-in three more cuts over the next year. In Europe, the European central Bank (ECB) has also been forced to reverse course on its attempts to normalise monetary policy, delivering a rate cut deeper into negative territory for European interest rates and a resumption of its balance sheet expansion (QE). Locally, we head into the last quarter of this decade with the market in cheap territory but lacking the growth required to kickstart a sustained upturn. With sentiment and expectations at low levels, the potential exists for some resolution of SA macro issues to boost equities. Hence, on a 12-month view, we maintain a moderately overweight position, but our conviction levels in the shorter term are not particularly high. Our 12-month return projection for domestic equities is 10%. On balance, we believe investors should remain patient, as valuations already reflect a very slow recovery (we hope to be positively surprised).

Meanwhile, the SA bond market has remained strong, and the curve shape has held stable over the quarter, with the 2-year yield weakening 4 bps and the 20-year weakening by 8 bps. We maintain a fair yield for the SA benchmark bond of 8.0%. The bond is currently trading at 8.34% and it has traded in the band of 7.98%-8.45% for the past quarter. This gives us an expected return of 10% over the next twelve months, which comprises of interest income of 8.3% and capital gains of 1.7%.

The key to successful management of your wealth is an ability to understand the changes to the world in which we live and to adjust (when necessary) your investment portfolios accordingly. As a boutique asset manager, we can navigate these twists and turns of global developments more readily and our team of experienced investment professionals are ideally suited to understand and react to a rapidly changing environment as we pursue exceptional investment outcomes for our clients.

For the full report and our views on each asset class, click here.

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