Share-shy?

Local investors are still shying away from shares a year after the last equity slide flattened out and began a solid rebound.

That’s the assessment of STANLIB after its regular face-to-face sessions with investment advisers nationwide.

“The consensus is that equities remain a hard-sell,” comments Paul Hansen, STANLIB’s director of retail investing.

“It’s unfortunate because these nervous investors have missed the equity upturn which began at the end of last April, resulting in gains of 50%%-plus in some sectors. But it’s also understandable.

“Up to last year, equity investors suffered five crashes in six years. We’ve seen wars, SARS, terror events, the dotcom bomb, emerging markets crash in Asia – typical turn-of-the-century tumult.

“I sympathise, but my advice remains ‘It’s still a fair time to be in equities’, albeit with caution because the SA stock market as a whole is now a bit overvalued. We believe, however, that selective value remains and that equities offer better returns than the alternatives of fixed interest investments.

Unit trust statistics support Hansen’s contention that local investors are more weary of equities than their international peers.

Note: In South Africa, 37% of wealth held in unit trusts is in collective investment schemes linked to the money market.

Over the last year, support increased for this type of fund … at a time when local equities were at last stirring ahead of a nine-month run.

A money market return of 7.4% converts into 4.5% net after a 40% adjustment for tax. As Hansen points out, “that’s about the return we are expecting from financial share dividends but with the chance of capital growth and improved portfolio balance on top”.

Hansen believes equities hold better prospects than other asset classes at the moment, but he is not unreservedly bullish. He admits some local counters “already look a tad over-valued” after a good 11-month run.

However, the house view is that select value is still available to astute stock pickers, with potential especially evident in financials in view of chances for good dividends and earnings growth.

Last year’s tip of “tilting” toward industrials has been superseded by a suggested tilt towards resources. One industrial fund has already shown 45% growth in 12 months, suggesting this sector could be in for a breather.

But if a year of good equity news has not prompted skittish investors to run down some of their cash positions, Hansen admits he may be “singing from the equity hymn-sheet” for a while before a change in sentiment comes through.

One solution for investors fearful of losing money in equities is to invest in a lower risk type of fund that has some limited equity exposure, such as a multi-manager low equity fund, that has some 27.5% in equities and the balance in fixed interest, including money market, bonds and property income funds.

If equities keep on advancing this fund has a nice little kicker. If equities fall, the 72.5% in fixed interest usually tends to act as a safety net. Over time the package delivers.

Note: This article should not be construed as offering advice. Consult a financial advisor who has knowledge, track record and skills in investment advice.