South African investors missed out

Local equities shot the lights out in 2024, but many investors missed out on profiting from this opportunity by playing it safe and sticking to fixed investments.

Prescient Investment Management’s Head of Retail, Murray Anderson, recently said that 2024 was a year in which investor expectations were repeatedly thwarted.

“Inflation proved stickier than expected, interest rates didn’t come down as far as economists forecast, and the equity market rally surpassed even the most optimistic predictions,” he said.

For South Africa, the disconnect between investor flows and equity market returns reinforced that trying to time markets often leads to missed opportunities. 

“Rather than focusing purely on safety, investors were reminded that every investment portfolio needs growth assets, specifically equities, to create long-term wealth,” Anderson said.

He said the most striking example of this missed opportunity was in the South African Equity General category. 

Despite delivering an impressive average return of 21.8% over the 12 months to September 2024, this category experienced net outflows of R11.3 billion during the same period. 

“This pattern suggests that investor sentiment often diverged from market performance, with many choosing perceived safety over potential returns,” he said.

“By the third quarter of 2024, it was evident that South African investors still sought the safety of fixed income and the high returns on offer due to relatively high interest rates rather than the potential returns offered by the equity market.”

For example, he said the South Africa Interest-Bearing Short-Term unit trust category emerged as the most popular choice for the third quarter, attracting R40.7 billion of the total R86.0 billion in net inflows into unit trusts for the quarter. 

“While understandable given market uncertainties, this conservative stance saw many investors miss out on significant equity returns that were experienced post-September,” he said.

In addition, the South African Interest Bearing Variable Term category emerged as a surprise performer, delivering an exceptional 24.3% return over the year. 

However, with only 6% of Collective Investment Scheme assets allocated to this category, relatively few investors benefited from this strong performance. 

The popular South African Interest-Bearing Short-Term category, which attracted almost half of net inflows, delivered a more modest 10.1% return. 

Anderson said asset allocation at the end of the third quarter in 2024 reflected these lower risk preferences, with 30% of assets in South African Interest-Bearing portfolios and 19% in South African Equity portfolios. 

Most assets (50%) remained in South African Multi-Asset portfolios, with the remaining 1% in South African Real Estate portfolios. 

How to avoid missing out again

Looking ahead, Anderson said investors face a complex risk environment in 2025. 

“It’s already been a bumpy start to the year, with global equity markets looking nervous about the risks that lie ahead and a worrying rise in bond yields, indicative of concerns about government debt levels,” he said.

“The risks that lie ahead are multi-faceted, resulting in some analysts predicting that 2025 will be the year of poly-crisis, as many crises unfold simultaneously.”

These crises include geopolitical risks as global tensions rise, economic challenges with the potential of recessions, market-specific risks like continued volatility, and environmental and social risks like climate change and social unrest.

Regardless of these challenges, Anderson said the key to investment success lies not in predicting market movements but in building robust, well-thought-out strategies.

These strategies should be able to weather various market conditions while remaining aligned with an investor’s personal financial objectives. 

Anderson outlined the core elements of an investment strategy to hold onto during 2025.

Maintain disciplined diversification

• Spread investments across different asset classes 
• Consider both local and international exposure 
• Balance investment portfolios across growth and defensive assets 

Focus on investment quality

• Prioritise investments in fundamentally strong companies 
• Consider sectors with proven resilience, such as healthcare and essential technologies 
• Maintain exposure to both growth and value opportunities 

Maintain a long-term perspective 

• Avoid reactive decisions based on short-term market movements 
• Stay invested through market cycles 
• Focus on long-term financial goals rather than short-term market noise 

“Successful investing requires balancing caution with opportunity,” Anderson said. 

“While it’s natural to seek safety during uncertain times, completely avoiding growth assets can significantly impact long-term returns.”

“The stark contrast between investor flows and equity market returns in 2024 serves as a powerful reminder of this principle.”