Decoding the future

Duane Cable (Chief Investment Officer SA, Ninety One) in conversation with Fagmeedah Petersen-Cook (Chair of Investment Committee, ABSA Pension Fund), Paul Wilson (Chief Investment Officer, Sanlam Investments Multi Manager) and Clyde Rossouw (Head of Quality, Ninety One).

08 Jul 2024

2 minutes

Decoding the future: Diversification, sustainability, and technology - Key considerations for global portfolio construction.

The increase in the offshore investment limit to 45% has prompted South African investors to explore a wider range of asset classes than listed global equities. Asset allocations are shifting and will continue to evolve.

Navigating the (much larger) offshore financial market opportunity set brings different challenges. This is evident in the wide range of risk-adjusted return outcomes across asset managers – particularly in less-efficient markets, such as emerging market debt and developed market credit. Investors are more selective, choosing different managers for different mandates according to skill, with some outsourcing of asset allocation decisions to a multi-asset manager. A global presence and perspective is vital for managers of these offshore investments, given the complexity and nuances involved in navigating local market dynamics.

As investors pay a significant premium for SA equities, full use of the 45% offshore allocation gives them more freedom to shop around for assets offering the best risk-adjusted return potential at attractive valuations. The US equity market remains key, but investors should also consider diversifying into other opportunity sets – especially given the ongoing shift to a multi-polar world and other secular themes at play on the global stage.

Higher offshore limits mean more potential for investors to tap into these global investment themes. Themes that are increasingly in focus include demographics (e.g., India’s young and aspirational population) and climate change/decarbonisation. Regarding the latter, different avenues exist to allow investors to explore this theme (and help support decarbonisation efforts in SA and beyond). These include renewable energy debt, transformative infrastructure, and private equity; this is a theme that naturally pulls investors more towards private market allocations. When considering another secular theme – AI – investors should look for big game changers (large-scale adoption that alters how we do things) rather than incremental game shifters such as Gen AI (a bubble that is likely to burst).

A sustainable investment approach in equity portfolios means looking for companies that are doing the right thing; companies that are involved in society and have a long-term perspective tend to make good decisions and often have robust standards of governance, which feeds through to performance.

In summary, the evolution of asset allocation among SA investors is opening up a much broader opportunity set. It also creates new challenges and requires closer scrutiny when selecting asset managers.

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Note: The views expressed within the summary are from the panelists who participated in the discussion and are not specifically views expressed from Ninety One.

Authored by

Duane Cable
Chief Investment Officer, SA
Fagmeedah Petersen-Cook
Head of Investment Committee, ABSA Group Pension Fund
Paul Wilson
Chief Investment Officer, Sanlam Multi Manager International

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