The dash for cash

The end of the calendar year often leads to reflection on how one’s investments have performed. Many savers are questioning the wisdom of investing in South African equities after a lean period, especially relative to what must currently feel like the safe haven of cash. This has led to a surge in interest in money market and income funds.

Graph 1 puts the last five calendar years into perspective. It assumes that each year an investor had a choice to invest in the FTSE/JSE All Share Index (ALSI) or in cash and calculates the excess return the investor received: When the red bar is above zero, equities performed better than cash, and vice versa. One can immediately see what a tough period it has been for equity investors despite Naspers returning a cumulative 167% over the period. Indeed, the simple five-year average excess return is now negative in contrast to the 118-year average of 8%. 

We’ve been here before
This period feels somewhat similar to 2002 and 2003 when South African equities had underperformed cash over the prior five years, as shown by the red line in Graph 2. The annual excess returns shown by the grey line were particularly poor, with equity investors experiencing significant underperformance during 2002 and 2003. With valuations low and sentiment negative, the market was priced to (and did) embark on a great bull run (even when measured in US dollars) following that period of poor performance from equities. We must however state that today’s valuations are not as low as they were then.

 What about the really long-term picture?
Read the full article: https://www.allangray.co.za/latest-insights/local-investing/the-dash-for-cash/ 

April 02 2019 By Duncan Artus and Nathan Wridgway - Allan Gray Financial Planning