In May 2019 the average prudential balanced portfolio returned -2.8% (April 2019: 2.7%). Top performer is Investment Solutions Balanced Fund -1.3%, while Allan Gray Balanced Fund -4.0% takes the bottom spot. For the 3-month period, Stanlib takes top spot, outperforming the ‘average’ by roughly 1.1%. On the other end of the scale Allan Gray Balanced Fund underperformed the ‘average’ by 1.0%. Note that these returns are before asset management fees.

Have investment markets normalised?

It is pretty much common knowledge that the situation we are and have been facing in investment markets globally for the past nearly 10 years, is the result of ‘ultra-loose’ monetary policy by central banks across the world, including Namibia. After the financial crisis, central banks poured money into the financial markets in order to encourage the consumer to pick up spending levels again after these had fallen flat in the aftermath of the financial crisis. Artificially low interest rates, designed to encourage spending, were great for the borrower, but bad news for the depositor, pensioners to a significant extent. In many instances depositors would earn negative real interest rates. To avoid this they would have been looking around for any asset class that offered any real returns. This is what we have seen, where all assets other than fixed interest investments experienced significant inflows resulting in their artificial and unsustainable growth.

This was certainly the case until the US Fed thought that it had achieved its objective of re-igniting economic growth. It started to raise the Fed rate for the first time in December 2015 when it looked like inflation was ticking up. At that point inflation has just turned positive and grew to 2.95% by April 2018, only to start turning down again since then to currently only 1.7%. The Fed rate was increased to 2.5% in December 2018 to stagnate since then and recent talk being for it to be lowered again.

The US Fed rate currently represents a real return of only 0.8%. Going by its long-term average the real rate should be around 1.7% in a normal interest rate environment.

Read part 6 of the Monthly Review of Portfolio Performance to 31 May 2019 to find out what our investment views are.