Update from the OUTvest Investment Committee (Q1 2020)

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27 May 2020
Report back from the investment committee
How do you build investment products for a world that has been turned on its head by the COVID-19 outbreak? This was a key focus for the OUTvest Investment Committee as we assessed our investment performance for the first quarter of 2020.

The oil price is at record lows yet we can’t get into a plane or car to travel? We have politicians and business leaders pledging hundreds of millions of Rands for the support of small business but many small businesses are simply not allowed to trade.

The South African Reserve Bank (SARB) has aggressively cut interest rates twice since the lockdown commenced. The interest rate cuts are putting money directly into the bank accounts of individuals with debt by reducing their monthly interest payment.

Virtually all listed equities, listed property and bonds fell sharply over the course of a month and recovered some of their losses in a few days.

It is worth pointing out that by the time of writing, the markets have not recovered their losses and it is clear that there is still a long way to go before we will be able to gauge the true impact of COVID-19 will have on markets, and of course, your investments.


It is cold-comfort to point to the fact that two of our balanced portfolios and our equity portfolio and argue that they have outperformed between 48% and 95% of industry peers over the last 3 years to the end of March 2019*, when their performance has been negative. It is a common saying in the investment industry that investors “cannot eat negative returns”. It is something that is constantly on our minds.

*Source: Morningstar

If you really want to see our robo-advisor in action, then you need to see the table below. It provides the clearest proof as to why we created the investment and advice system that supports all our customers.

This table shows you the fund returns for each of the five portfolios over selected periods over the last few months.

It is clear to see that when markets fell, the OUTaggressive Fund fell the hardest, then the OUTmoderate, OUTstable and the OUTcautious Fund fell the least. In the last column, you can see that taking into account the small recovery, the OUTcautious has the smallest negative return, other than the Money Market Fund, and the size of the negative return increases as you move towards the OUTaggressive Fund.

This picture isn’t by accident, we designed the Funds to behave like this in times of a market crash and subsequent recovery and the reason for this is to ensure that it helps you achieve your individual investment objectives taking only as much risk as is needed, and no more.


Source: Morningstar

Switching to the future, the investment committee discussed the fall in the value of equities has now meant that on a historic basis, equities are now extremely good value.

The chart below shows the progression of the Price / Earnings Ratio and Dividend Yield. The Price Earnings Ratio is a simple way to show you how expensive or cheap the markets are. The lower the value, the cheaper the market is).

The Dividend Yield is a measure that gives you an indication of the annual income you could receive from your investments in the listed equity markets. Its quoted as a percentage, and in practice 5%, means R5 for every R100 invested.


As you can see from the chart below, at the end of March 2020, the dividend was 5% – the same as the SA inflation rate, and you can get this just by investing in South African listed shares.

Any capital gains on your shares as a result of a recovery meant you would be comfortably outpacing inflation.

While your investment portfolio might make for grim reading in the short-term, our Investment Committee identified a couple of key areas which could be positives in the longer-term:

While the South African resource sector has been one of the hardest hit, the sector could benefit from a strong foreign earnings base.

  •  Power utility Eskom has been able to use this slowdown in economic activity and electricity demand to conduct critical maintenance.
  • A major shift in the energy market with the price of oil in some areas being negative. Yes, an oil producer would pay you to take their oil. As many of our goods and services depend on oil as an input, this should indicate lower inflation in the future.
  • The rapid [and skilled] response from the South African health authorities has been recognized as one of the best in the world. While much work needs to be done to understand why the impact of the virus on the South African population has been low, it does give the country a chance to prepare its health infrastructure should cases spike.
  • Government is being forced to decide how to prioritise spending and appears to be holding back on committing further bailouts to the likes of SAA and SA Express. This might create short-term pain but a stronger balance sheet in the long term. At the time of writing SAA Express was being provisionally liquidated. 
  •  A reduction in interest rates might be good for consumers carrying significant amounts of debt, but this benefit is likely to be offset by retrenchments as a result of the shutdown.
  • In summary, our Investment Committee are unanimous that we will not see a “V-Shaped” recovery in either the real economy or markets in the near-term, it will take much longer, but we still see a “U” shaped recovery.


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