We summarise the key points from this Allan Gray article:
The biggest risk investors face is losing money by overpaying for an asset.
Over the last four years, equity returns over cash returns have been well below average.
We see many attractive opportunities in South African equities, but we are aware of the scary economic and political outlook. We have assumed low-and high-road scenarios for South Africa for the immediate future. We’ve grouped these positions together in the portfolios, which we believe should outperform each scenario. There is also a middle-road scenario that includes companies that have both local and offshore operations.
Currently, we’ve positioned the Balanced Fund 50/50 between a high- and low-road scenario and diversified across many different asset classes. In addition, investments are trading below estimated fair values.
A high-road scenario is mirrored on the Brazilian experience. After a double downgrade by rating agencies, a presidential impeachment, various attempted reforms, and the implementation of a government expenditure ceiling, the currency strengthened 30% and bonds were up 50%, all in the space of a year. However, this could be an over-reaction on the upside.
The low-road scenario comprises 25% of the portfolio invested offshore in opportunities not available in SA. A further 18% is invested in JSE shares with offshore operations, such as Naspers and BAT.
The Balanced Fund is positioned to weather multiple outcomes, populated with cheap assets that can withstand a lot of bad news.
Risks are top of mind and duly considered when putting a portfolio together, which should protect and grow your capital in these unsettling times.
Read the full Allan Gray article here: How are our portfolios positioned to protect and grow our clients’ capital