Investing in turbulent times

Carl Chetty (CFA) Senior Investment Consultant at Hollard Investments

In South Africa and across the world this year, millions of people will be voting in more than 64 countries. Geopolitical tensions, especially in the Middle East and between the United States and China, are escalating.

Many countries are battling inflation and central banks are mulling over interest rate cuts. Investors are understandably jittery.

However, there are ways to ride the storm. Within the context of a well-diversified portfolio, Hollard Investments believes an overall defensive asset allocation stance is warranted amid this uncertain macroeconomic and political backdrop.

We see shorter-dated South African government bonds as attractive due to their high starting yields, low duration risk and low default probability. However, we believe long-dated government bonds, listed property and equities may underperform if the South African election outcome is viewed negatively by the market.

Globally, Hollard Investments favours defensive assets, such as US cash instruments and short-dated treasury bonds, over equities and property at a broad market index level. Nonetheless, we believe there are opportunities for outsized returns in the global equity markets through careful stock, sector and country selections.

Alternative investments, including private debt, equity, real estate and hedge funds, offer non-correlated returns, lower volatility and enhanced yield pickup. Despite regulatory relaxations allowing greater allocation to alternative assets, uptake in South Africa has remained low due to project availability, concerns over liquidity and exit options, and a lack of investor education.

Hollard Investments advocates for including such alternatives in client portfolios. We believe local private debt and offshore-listed infrastructure equity can both reduce risk and enhance returns (with the latter having the added bonus of a positive effect on society and the environment). We also see potential in reasonably priced hedge funds for tactical purposes due to their wider toolbox that gives them an ability to generate consistent and uncorrelated positive returns.

When it comes to investing, turbulent times call for rational decision-making. Hollard Investments believes in putting emotions to one side, identifying where value is to be found, and maximising returns with a calculated approach.