Ca$h, Ca$h, Baby

Fixed-income assets, such as cash and bonds, have outperformed most equity returns over the medium term as South Africa’s economic and policy woes weigh heavily on listed companies. A slew of corporate governance failures didn’t inspire confidence in the once returns-lucrative stock market. Will cash continue to have the edge?

- Jaco Visser

pensioners and retail investors are turning to fixed-income investments to protect their invested capital against the lacklustre performance of equity investments. The FTSE/JSE All Share Index returned 11.49% over the 12 months ending 31 October. The All Bond Index returned 12.96% over the same period.

Retirees, who rely on capital growth in order to withdraw an annual income and ensure their capital lasts until they die, are especially hard-pressed when equity returns slump.

No wonder investors shifted their capital from pure equity funds to either fully interest-bearing funds, those invested in cash and bonds; or those with a sizeable allocation to these assets, also called multi-asset funds.

Data from the Association for Savings and Investments SA (Asia) which, among others, monitors flows into and between funds, showed that interest-bearing collective investment schemes – typically your income, money market and bond funds – saw a net inflow of R87.55bn over the 12 months through the end of September.

Pure equity unit trusts saw outflows of R2.3bn, and multi-asset funds, which include balanced funds, saw inflows of R32.35bn over the same period.

“Several factors contributed to bonds’ performance in 2019,” says Londa Nxumalo, portfolio manager at Allan Gray. “These include falling global bond yields, consistently benign inflation prints in SA and local investors rotating out of equities into bonds.”

Importing cheap rates

Much commentary was expensed this year as bonds’ yield curve inverted in the developed markets. What does it mean, though?