How professionals are investing in volatile market conditions

Since 2016, muted economic growth locally, and an increase in geopolitical risks globally, contributed to South African equities underperforming fixed interest assets. The table below illustrates some of the most popular ASISA categories with regards to net flows and the contrast in their performance during two specific periods. During period one, there was a clear benefit to investors who increased their equity exposure. The opposite is true during period two, where taking on additional risk resulted in additional underperformance.

Investor response

Sustained equity underperformance during the medium-term has contributed to investors switching from equities to South African fixed interest. Although this de-risking trend started in 2016, it gained considerable momentum during 2018, as the JSE All Share lost 8.53% during the calendar year.

When observing asset class net flows across the industry during the two above mentioned periods, there has been a clear shift in the direction of flows. The graph below illustrates the percentage flows into each asset class during period one (July 2012 – December 2015) and period two (January 2016 – June 2019):

Graph one: Flows into asset classes over time

Are professionals any different?

In contrast to industry trends, PPS Investments analysis of investors shows that they have been more resilient regarding their investment behaviour. Although there has been a slight increase in the proportion of assets flowing into fixed interest investments, the shift has been significantly lower compared to the industry. The consistency of net flows over time onto the platform is illustrated below:

Graph two: Asset class flows on the PPS Investments platform

A look-through into the professions saving the most on our platform show that they continue to maintain a healthy allocation to growth assets, with those in the financial and accounting profession having the largest allocation to equities, and those in the dental profession, the lowest.

Graph three: Asset allocation per profession

Professionals investing towards retirement goals

Investing towards retirement remains the priority for the majority of PPS members across the age spectrum. Furthermore, the research shows that other popular investment solutions include investment accounts and tax-free investments, particularly in the 20–44 age group in the professional market. Looking at professionals that save the most, dentists top the category, ahead of scientists and accountants by almost 40%.

Graph four: Average market value per profession

Stay focused and committed to your financial plan

The best defence against risk and uncertainty is to hold a well-diversified and sensibly constructed portfolio that is not reliant on any particular market outcome.

Making rash investment decisions could affect your ability to achieve your long-term goals. Keep in mind that despite its volatility over the short-term, equities are an important asset class for achieving long-term inflation-beating returns and is therefore, essential to maintain an appropriate and meaningful allocation that is consistent with one’s risk appetite and investment objective.