Uncle Sam may be the man, but for how much longer?
Stay invested in US equities, knowing that potential upside is limited, or do you get seduced locally?
I have huge sympathy for portfolio managers. In challenging markets they have to parade their well-worn mantras – be patient; be invested for the long term; it’s not about timing the market, but time in the market. They are correct, but sometimes their meanings can get quite stretched.
The horizon for “time” and “long term” is well accepted as being about five years. But looking at the most recent five-year period, the JSE all share index (Alsi) has gone nowhere, only rising by 1.4% compounded per year, and investors would have been better off in interest-bearing instruments. Adding in a dividend yield of 3% takes this to a total return of 4.4%, still significantly lower than money markets.
The situation is different in the US, where markets are at all-time highs and interest rates extremely low. Over the past five years the S&P 500 has risen 56%, which is a 9.2% five-year compound annual growth rate. On observing this trend, SA fund managers have avoided the Alsi, preferring to invest offshore, notably in the US equity market...