Investment insights for 2016

2016 is around the corner/2016 is upon us and to help you manage your investments next/this year, Moneyweb has gathered a handful of investment tips from wealth managers and stock market gurus.

Warren Ingram, executive director, Galileo Capital

The investment markets in 2016 are likely to be as rocky as 2015. Global investors will focus on interest rates in the US and the economic growth (or decline) in China. Once the markets have more clarity on these two major themes, we might get a reduction in global volatility. South Africans will need to watch the global commodity cycle to determine if there will be any change in the rand’s fortunes. Should investors see a levelling out or even early signs of a recovery in the commodity cycle, it is likely that the rand might start to recover some of its losses against the developed market currencies.

When global and local markets are so volatile, investors would do well to keep their portfolios highly diversified across a range of asset classes and international markets. Try to avoid making large bets on a single investment strategy, e.g. sending all your money out of South Africa at R13.90 to the US dollar or investing all your money in South African cash to avoid market volatility. Rather spread your investments across all the major asset classes and if you need to build up your offshore exposure, try to do so in tranches over time, not all at once.

Magnus Heystek, director and investment strategist, Brenthurst Wealth Management

My best advice to young people, savers and investors? Banish the word “retirement” from your vocabulary, especially when it is used in conjunction with the adjective “early”. Let’s say that again: there is no such thing as early retirement, and if it’s ever forced on you, you must know it’s a financial death sentence.

Stop listening to schemes, charlatans and gurus trying to convince you that you can retire at the age of 30, 40, 50 or even 60. They are setting you up for failure and disappointment.

Firstly, you won’t have enough money to retire at any of these ages, unless you inherit a humungous mountain of money. Secondly, even if you did, you need to remember that the year that you are born and the year of your retirement are the two most dangerous years in your life. Most people are defined by their careers. Do you think your retirement will define you?

Anthea Gardner, managing partner, Cartesian Capital

2016 looks likely to be a tough year for SA Inc. In an environment of lower economic growth, higher inflation, higher interest rates and lower discretionary consumer spend, I’m inclined to look for companies that are almost recession proof. The private schools businesses have proven to be in high demand and insufficient supply, and my preferred pick in this space is ADvTECH (Crawford Schools, Varsity College, Abbotts, Trinity House and Junior Colleges).

This business fits succinctly into the space between the lower-end government schools and the high-end private schools and speaks to the growing emerging middle class in South Africa. ADvTECH is planning to increase prices by 6-10% in 2016. With current cost of capital between 10-12% and targeted return of 20%, we calculate a positive impact on margins.

The recent appointment of Roy Douglas, who joined the business in 2012, bodes well for a business that saw the departure of their CEO, Leslie Massdorp, after only a few months at the helm. Douglas has been responsible for the turnaround of the tertiary business and with an R850 million capital raise on the cards, the company has guided that the money will be used to write down some of the debt and for future expansion.

Warren Buffet said “the best investment you can make is in yourself. Not only does it improve your life, but it improves the lives of the people around you”.

I believe the best way to improve self is through education, and in this regard, I’m taking a holistic approach to choosing my best investment idea for 2016.

Simon Brown, founder, JustOneLap

A key lesson we need to take from 2015 and always remember is that trends tend to continue for a lot longer than anybody expects. Resource shares started 2015 at very low levels and spent the year moving lower still. A trend is a powerful force and the best we can do is get out of the way of the trend and wait for it to play out, however long that may take.

Another key point that is likely to be important in 2016 is to be careful of the rush of initial public offerings (IPO) we’re seeing. Not all IPOs are created equal and the pop that we saw with Sygnia is proving to be the exception to the rule for 2015. Every new listing must be judged on its merits and just because a lot of people are excited about a new listing does not mean the stock will rate higher once listed.

Lastly, always know what one is trying to achieve in the market and don’t be swayed by the noise and hype that is generated. Have a clear long-term strategy and ignore short-term noise that is trying to throw you off that strategy.

Craig Gradidge, investment specialist, Gradidge Mahura Investments

2015 proved to be a challenging year for investors, although returns for the year to date are largely positive and ahead of inflation (before fees and taxes). As at the end of November, listed property continued to defy critics putting in another winning performance (+14.4%), followed by equities (+7.5%), cash (+5.29%) and bonds (+3.6%). Consumer price inflation came in at around 4.9%.

One of the main features of 2015 was the return of volatility. Listed property was down more than 11% between April and June, while equities fell more than 13% between mid-April and late August.

All of this points to timeless advice: build a suitably diversified portfolio, and hold on for the long term. A suitably diversified portfolio would have ridden out the volatility quite well, particularly if it included a decent offshore exposure.

Investors are unable to control or influence market returns and behaviour, so they should focus on the areas where they have some influence. These are their own behaviours, costs, and portfolio risk.

Investors who are able to develop a long-term perspective when it comes to their investment strategy are most likely to succeed.