In December 2019 the average prudential balanced portfolio returned 1.0% (November 2019: -0.7%). Top performer is Nam Coronation Balanced Plus with 1.6%, while Investment Solutions with 0.2% takes the bottom spot. For the 3-month period, Namibia Coronation again takes the top spot, outperforming the ‘average’ by roughly 1.3%. On the other end of the scale Investment Solutions Fund underperformed the ‘average’ by 1.1%. Note that these returns are before (gross of) asset management fees.
The Monthly Review of Portfolio Performance to 31 December 2019 provides a full review of portfolio performances and other interesting analyses.
How to invest in 2020
Based on our above analysis, we see no increase in interest rates for 2020 in the US or in SA, everything being equal, perhaps still another reduction. We believe there is also not much scope for further reductions in the SA repo rate except if SA inflation dropped relative to US inflation or if the US reduced the Fed rate further. The Rand is currently noticeably undervalued. This is probably due to the poor shape of the SA economy which of course is unlikely to improve much over the medium term, particularly in the absence of another commodity run. That also does not seem to be on the horizon. We rather see a slow improvement on the back of a slow improvement in global economies and the settling of the US: China trade dispute. The Rand is thus likely to remain under valued in the medium term. We certainly do not see a rapid correction. Company earnings being as high as they are both in SA and much more so in the US, there is little support of equities deriving from improving company earnings but to some extent by declining interest rates.
Equities are unlikely to deliver the two-digit returns we have seen in the past in 2020 but are expected to out-perform cash returns slightly, i.e. in the region of 7% to 10%. Since we do not expect interest rates to decline much further, and certainly not to increase, bonds should deliver a return of around 10%, i.e. above that of equities and cash. Property is likely to remain in the doldrums for next year. Our expectations of the returns on the various asset classes for 2020 would suggest a conservative portfolio with a fair spread across global investment markets.