South African pension funds proceed to position their wager on equities, with 61% of portfolios invested within the asset class, trending above the Center East and Africa area which has 55% of whole belongings in equities.
In line with the Mercer Asset Allocation Insights 2022 report on pension allocation traits in Africa launched on Wednesday, the elevated dependence on equities as an funding automobile got here as managers took a extra pro-risk stance in anticipation of post-Covid-19 enterprise exercise restoration.
That is evidenced within the about 6% improve in allocations to progress belongings in comparison with the prior yr’s survey outcomes.
“Elevated fairness allocations have been primarily funded by a discount in money allocations, with home equities being favoured over worldwide equities owing to extra engaging valuations inside the South African market,” says Mandisa Zavala, head of asset allocation at Alexforbes.
Funding in mounted earnings/bonds decreased barely on the prior yr to 30.8%, down from 33.2%, whereas funding in different and money/short-term asset courses hovered across the 12% mark.
The report famous a discount in publicity to worldwide belongings within the interval, however that is anticipated to vary considerably following the Nationwide Treasury’s choice to lift the allocation cap on offshore belongings by retirement funds.
“South African traders proceed to make full use of their permitted allocations to offshore belongings, with worldwide belongings representing round 28.5% of whole allocations within the survey, with this stage anticipated to extend following the rise within the most offshore allocation to 45% in February 2022,” in accordance with Zavala.
Zavala highlights a number of dangers that threaten asset portfolios in the second half of the yr – essentially the most urgent being the continuing invasion of Ukraine by Russia and its devastating knock-on impact in different elements of Europe.
Occasions in China in relation to the continued tightening of Covid-19 restrictions, in contradiction of worldwide traits, heightened tensions with the US, and a weaker yuan all represent dangers that fund managers want to contemplate when developing their portfolios shifting ahead.
Mercer says that to protect their portfolios in opposition to danger, fund managers ought to take into account reassessing their China publicity, assess their portfolios for sensitivity to inflation, make investments sustainably, and problem their dwelling bias.
“Asset allocation is without doubt one of the most essential selections an investor makes,” says Fiona Dunsire, regional wealth chief at Mercer.
“An intensive evaluation of dangers is vital to developing a portfolio that seeks to fulfill your goals, whereas additionally being positioned to capitalise on alternatives and mitigate unexpected dangers in a well timed method.
“To assist inform asset allocation it may be helpful to evaluate portfolios in opposition to the traits of worldwide institutional traders and friends world wide,” she provides.
Hearken to Fifi Peters’s interview with Johan Gouws of Sasfin Wealth (or learn the transcript right here):