Investing in South Africa’s fixed-income market amid various uncertainties, socio-economic issues, elevated yields, and sluggish growth can be challenging. In times of uncertainty, many investors' first instinct is to put their savings into safe-haven funds like money market funds, not considering other investment opportunities that will provide them with better returns.
Prescient Whitepaper
Traditional investment strategies face mounting macroeconomic and geopolitical challenges in today’s investment landscape. With this in mind, we at Prescient Investment Management have had to, and continue to, leverage innovative approaches to achieve robust returns. An example is our particular areas of interest, high-yield credit and infrastructure investment, where we have focussed considerable energy on identifying the opportunities available to investors.
The investment landscape is evolving, with criticisms of Environmental, Social, and Governance (ESG) taking centre stage and naysayers denouncing it as a PR exercise. Despite scepticism and misconceptions labelling ESG as ineffective or irrelevant, research conducted over the past few years has found ESG investments.
As has always been the case, investors, generally speaking, seek stability without sacrificing growth potential. While equities typically dominate the spotlight, credit investments offer a compelling alternative that is both resilient and adaptable, especially when included as part of a diversified portfolio.
The latest investment flow data from South Africa's Collective Investment Schemes (CIS) paints a familiar picture - investors trying and failing to time the market. In July 2024, we saw a significant shift in money out of equity funds and into fixed-income funds, with net outflows of R10.9 billion across all fund categories.
In the world of investing, it is our view at Prescient Investment Management (PIM), that striving for the perfect balance is crucial for long-term success. We understand that this success hinges on meticulously calibrating strategies to be neither too aggressive nor overly cautious - striking this balance is essential to not expose investors to unnecessary risks; or result in missed opportunities for growth. Being alert to where one is in the market cycle and having the ability to adjust strategies accordingly is key to navigating market complexities and delivering on client promises.
Political uncertainty in the build-up to the elections and longer-term structural economic concerns have seen investors eager to invest offshore. This is reflected in the R73 billion increase in the total assets invested in foreign collective investment schemes to R928 billion in the first quarter of this year from R854.8 billion in the fourth quarter of 2023.
As we enter the final week of National Savings Month, it's an opportune time to highlight the power of compound interest, a cornerstone of long-term financial growth. Warren Buffett famously described compound interest as the "eighth wonder of the world." His wealth, largely accumulated after his 50th birthday, underscores the transformative power of time and patience in investing. The secret? Start early, invest consistently, and allow compound interest to work over time. As Buffett himself noted, "My life has been a product of compound interest."
At Prescient Investment Management (PIM), we recognise the scepticism and misconceptions that often surround ESG (Environmental, Social, and Governance) investing. It is sometimes unfairly labelled as a "dirty word" by critics who question its effectiveness and relevance. However, our approach to ESG is grounded in pragmatism and a clear understanding of its role in comprehensive risk management. We believe that integrating ESG factors is not only beneficial but essential in today's investment landscape.
In the intricate and forward-looking world of asset management, the distinction between macroeconomic outlook and market sentiment is pivotal. The former gives us an overarching view of the state of the economy and its likely trajectory. In contrast, the latter gives us insights into market participants' psychological and behavioural aspects, which often drive markets and may not reflect macroeconomic fundamentals.