According to Beatri Faul, investment specialist at Allan Gray, the best way to protect an investor’s capital is to construct a well-diversified portfolio that can earn real returns regardless of market conditions. But looking at flows in the investment industry, investors are making decisions based on recent performance.
Due to the disappointing real return on equities over the past five years, investors have increasingly shied away from equity exposure in their portfolios, opting for bonds and cash instead. Statistics from Allan Gray shows that inflows into the Multi-Asset Income category have increased almost four times over the past five years, while it decreased for the Multi-Asset High and Low Equity categories. Furthermore, the average percentage switched to income funds almost doubled from 2018 to 2019.
“Switching to cash and bonds may seem like a good idea now. However, long-term past performance reflects that equities give you the best outcome and, depending on your personal objectives and time frames, are an important part of your portfolio,” says Faul.
“It’s not to say bonds and cash should be entirely avoided. However, changing your strategy out of fear and switching to cash and bonds completely may not be the best long-term strategy. This is because these asset classes are not entirely without risk, especially given the current climate and impact of potential rating downgrades,” Faul shares.
Faul’s investigation compares the long-term performance of equities vs cash and bonds, looks at where local money is placed, and compares it with the Allan Gray Investment Platform.
Click here to read the detail of Faul’s investigation.
