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Our 2021 Asset Allocation Views

Updated: Jan 20



Let's first review recent asset class performances:


The last decade has been filled with event risks including the Great Financial Crisis, Grexit, Chinese shadow debt defaults, US/China trade wars, Brexit and most recently Covid-19. The world has muddled through the various events by lowering interest rates and using creative monetary policy. Covid-19 changed that, along with the largest fiscal support in two decades. 2021 will see the impacts of the fiscal spend, alongside a continuation of $4 trillion in quantitative easing, as the global economy recovers strongly on the back of vaccine rollouts. At the same time global trade is likely to rise due to a more collaborative US foreign policy and falling trade costs because of low oil prices and low US interest rates.


Our 2021 Asset Allocation Views:


LOCAL:

  • SA Equity [Neutral position]: with PEs at +-15, the domestic equity market seems to be not excessively cheap or expensive. There was a large dispersion in returns between sectors though, which now creates opportunities. Economic conditions are improving, but there are challenges. Biden's economic stimulus will support global equity markets.

  • Banks [Overweight]: a valuation/recovery play. Banks are over sold on COVID fears.

  • Consumer Goods [Overweight]: The same as financials, a valuation/recovery play. It is over sold on COVID fears, however not to the same extent as banks.

  • Consumer Services [Neutral position].

  • Mines [Underweight]: Elevated gold price, governance issues, extreme rally past 5 years.

  • Other Basic Materials [Neutral position]: SASOL does create some opportunities to actively trade its shares.

  • Other Financials [Neutral position].

  • Technology [Neutral position].

  • Domestic Property [Underweight]: Even after severe corrections over the past years, it still does not look attractive. Over supply and overtraded.

  • SA Bonds [Overweight]: Yield curve very attractive.

  • Other SA Fixed Income [Overweight]: Credit offering value, especially against poor cash yields.

  • SA Cash [Underweight]: Not worth the yield. Opportunity cost.

OFFSHORE:

  • DM Equity [Neutral position]: Dominated by US, where the bull market is getting a bit long in the tooth. However, more QE can drive EQ markets further so its more a question of which region to invest in, rather than the asset class.

  • US Market [Underweight]: See above.

  • Europe [Overweight]: Value abound.

  • EM Equity [Overweight]: Stimulus, relative valuation, China.

  • China [Overweight]: The big growth story, plus Biden positive.

  • India [Neutral position]: Great long term dynamics, but well known and trades at high valuations at times. Worth holding, but time buys patiently.

  • Rest of Asia [Underweight]: South East Asia always a good play on Chinese growth. We have massive china exposure already so might be best to diversify elsewhere, or reallocate some china to proxies?

  • South America [Underweight]: Bond markets too risky. Equities worth looking at specific countries, amid our relative exposures through EM trackers. Essentially we are positioned in favor of China, and for good reason.

  • Rest of Africa [Underweight]: Worth considering - Diversification/growth opportunities. Highly volatile in liquidity squeezes, so only appropriate for higher risk portfolios.

  • Commodities [Underweight]: Would like to attain gold and silver in funds where we don't hold it for diversification, but not at current Gold price, still pricing in fear. Will buy closer to $1200 per ounce.

  • Fixed Income [Underweight]: No yield.

  • Global Property [Neutral position]: Not attractive at all, only for diversification.

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