2016 to bring continuing shift towards passive investing and real assets: Old Mutual Investment Group

Growing pile of money

The New Year will see the trend towards passive and real asset investing continue, with ongoing volatility in a positively trending global market, a potential recovery in Emerging Markets and the rise of robo-advice in South Africa. This is according to Hywel George, Director of Investments at Old Mutual Investment Group, in his 2016 outlook where he highlighted the overall investment trends to expect from the year ahead.

George points out that globally, there has been a huge shift towards passive investing, with demand for Exchange Traded Funds and smart-beta index funds growing exponentially. “We expect South Africa to experience a similar trend for a number of reasons. Firstly, for the past few years there has been continued downward pressure on fees because, in a generally lower-return environment, fees comprise a higher proportion of returns, eating into the net returns delivered by funds. In addition, over a five-year period, a relatively large proportion of South African active fund managers have underperformed their benchmarks and this has increased investor interest in passive funds,” he explains.

“Lastly, in its review of retirement funding costs over the last few years, National Treasury has come out in support of passive funds, saying they are underutilised in South Africa.”

George also believes that 2016 will see the allocation of more investment in real assets in the search for higher returns. “As global yields have trended lower, the one place asset owners have been able to achieve the higher returns they’ve been seeking is in real assets, which include an illiquidity premium,” he says.

“Also, there is less perceived volatility in real assets because they are not marked-to-market on a daily basis − and they offer a smoother, less correlated, inflation-driven return path.”

Volatility in positively trending global markets is also expected to continue, according to George. He says that in the wake of the first, long-anticipated US Fed rate hike, developed economies are likely to go back to business as usual, with growth of about 3% a year. Over the longer term, the deflationary impact of technology on prices and imported deflation from emerging markets’ manufactured goods – given the very strong dollar – means that inflation and interest rates are likely to remain lower for longer, with inflation of around 2%.

“Against this backdrop, developed stock markets, which are generally not trading at expensive levels, are likely to achieve double-digit returns,” he says. “However, investors should expect continued global market volatility as investors move between risk-on/risk-off positions, which could be exacerbated by any uncertainty around Chinese growth prospects.”

Lastly, George highlights the rise of robo advice in SA in 2016. “The use of robo-advice has exploded globally, with estimates that assets under management could grow by 2 500% to US$489bn by 2020* from US$18.7bn currently. Robo-advice, which is online, automated portfolio management advice, is gaining traction as investment costs come under greater scrutiny and both young and older investors become more comfortable with migrating onto digital platforms,” he explains.

“In anticipation of robo-advice coming to South Africa, the industry needs to be smart about how we digitise the delivery of our savings products − for direct client contact and, importantly, supporting investment advisers. Also, digital advice is better suited to goal- rather than input-based investing and therefore it is important for the investor to build up a full picture of their financial situation.”

 



Latest


16 Feb 2021
Transition management services partnership announced

Standard Bank has signed a memorandum of understanding (MoU) with Chicago-headquartered financial services company Northern Trust, to partner on the…

Transition management services partnership announced

Standard Bank has signed a memorandum of understanding (MoU) with Chicago-headquartered financial services company Northern Trust, to partner on the delivery of transition management services across Southern Africa. Under the partnership, Standard Bank’s clients will gain access to Northern Trust’s full suite of transition management services. Transition Management is a…

16 Feb 2021
Tax free wealth creation with property funds

By Liliane Barnard, CEO and Portfolio Manager at Metope Investment Managers, and Aimee Glisson, Director: Operations, Performance & Risk at…

Tax free wealth creation with property funds

By Liliane Barnard, CEO and Portfolio Manager at Metope Investment Managers, and Aimee Glisson, Director: Operations, Performance & Risk at Metope Investment Managers The tax year, along with the deadline for an investor’s maximum R36 000 annual tax-free savings account contribution, comes to an end on the 28 February 2021. Investors…

16 Feb 2021
Why multi-manager investing is popular

Multi-management has been around for over two decades. This investment management approach is popular among many investors because it promises…

Why multi-manager investing is popular

Multi-management has been around for over two decades. This investment management approach is popular among many investors because it promises to deliver smoother, more consistent investment returns, despite cyclical turbulence of financial markets. Given last year’s drastic swings in financial markets and continued uncertainty on how the Covid pandemic will…

16 Feb 2021
Momentum Health Solutions unpacks COVID-19 vaccine roll-out plan

Momentum Health Solutions announced its COVID-19 vaccine roll-out strategy and how it intends to support both its members, as well…

Momentum Health Solutions unpacks COVID-19 vaccine roll-out plan

Momentum Health Solutions announced its COVID-19 vaccine roll-out strategy and how it intends to support both its members, as well as the uncovered population, in being vaccinated. As the COVID-19 virus continues to spread, a third wave is imminent, should the vaccination rollout not commence soon. Speaking at a recent…


Top stories


10 Sep 2020
How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key…

How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key that dubbed America “The land of the free”, which stuck, to the unforgettable Mel Gibson monologue where an army of painted Scots were willing to trade their lives for the…

13 Apr 2020
Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19…

Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19 environment and what form a global market recovery will take.

13 Apr 2020
SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The…

SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The draft Bill, together with its explanatory memorandum, provides clarity with regards the tax relief measures President Cyril Ramaphosa announced on 23 March.

10 Apr 2020
When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved…

When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved to be most enterprising in acclimatising to challenges as they arise.


Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za