Global equities offering best value to investors

David Green, Chief Investment Officer at PPS Investments

Global developed market equities are currently offering yields higher than their 20-year average and as a result are the most favourable asset class on valuation grounds.

This is according to David Green, Chief Investment Officer at PPS Investments, who says his enthusiasm is reinforced by the recent strength of the Rand – making it even more appealing to invest into this asset class. “For this reason, we continue to have close-to-full exposures. The recent relaxation in maximum permissible exposure levels from 20% to 25% means we can also contemplate increasing our exposures a bit further.”

He says global emerging market equities are approximately fairly valued, while local asset classes and global developed market bonds are looking slightly expensive. “Global 3-month deposit rates remain extremely low, making this the lowest-yielding asset class at the moment and the most expensive by this valuation measure.”

“After reaching their most attractive levels in the last twenty years during 2009, global developed market equities remain attractive while local equities actually peaked last year near their most expensive levels for twenty years. Somewhat more concerning, however, is the apparent co-incidence of expensiveness of all of local equities and listed property, and local and global developed market bonds and cash.”

“This is alarming because if we are already holding almost as much as we are allowed of the only relatively attractive asset class, and everything else seems as expensive (or nearly so) as it’s been for twenty years, what are the options for investors?”

Green says he manages assets on the basis of valuations, not forecasts. “It’s for this reason that we’ve taken advantage of the attractive yields (and our strong currency), and invested so deliberately in global developed market equities. We aren’t convinced of the value of financial market forecasting, and cannot foresee the future or precisely when this will release value for our investors. We just know that sooner or later it will, and have positioned our portfolios accordingly.”

Of the other asset classes, Green says the current co-incidence of relatively low yields doesn’t of itself introduce uncertainty into financial markets. “Financial markets are always uncertain. The appropriate response to this uncertainty is therefore to diversify across the available asset classes, focusing on income assets for more conservative portfolios, and on growth assets for portfolios with more demanding return objectives.”

“Our analysis and experience strongly suggest that this, coupled with a patient adherence to the minimum investment periods attached to each of our portfolios, is the most sensible way to help all our clients meet their financial objectives.”

Green says financial markets, and the asset classes they represent, will continue to ascend and descend in price seemingly at random. ”However, a careful eye on valuation opportunities, a commitment to sensible diversification, and a patient approach to the inevitable ups and downs of short-term market movements, will yield satisfying results over time.”