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.
The SA 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.
Perhaps the most striking example of this missed opportunity was in the SA 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, with only a modest R1.9 billion inflow in the third quarter of the year, according to the latest Association of Savings Investments SA Collective Investment Schemes (CIS) data.
This pattern suggests that investor sentiment often diverged from market performance, with many choosing perceived safety over potential returns.
The SA Interest Bearing – Variable Term category emerged as a surprise performer, delivering an exceptional 24.3% return over the year. However, with only 6% of CIS assets allocated to this category, relatively few investors benefited from this strong performance. The popular SA Interest Bearing – Short Term category, which attracted almost half of net inflows, delivered a more modest 10.1% return.
Asset allocation at the end of the third quarter in 2024 reflected these lower risk preferences, with 30% of assets in SA Interest Bearing portfolios and 19% in SA Equity portfolios. The majority of assets (50%) remained in SA Multi Asset portfolios, with the remaining 1% in SA Real Estate portfolios.
Key lessons from 2024
Several crucial investment lessons emerged from 2024 – a year in which investor expectations were thwarted time and again. Inflation proved more sticky than expected, interest rates didn’t come down as far as economists forecast, and the equity market rally surpassed even the most optimistic predictions.
In South Africa, the disconnect between investor flows and equity market returns reinforced that trying to time markets often leads to missed opportunities and that diversification across different asset classes remains crucial. Rather than focusing purely on safety, investors were reminded that every investment portfolio needs growth assets, specifically equities, to create long-term wealth.
Maintaining a long-term perspective is also a non-negotiable in a world where markets can turn on a dime based on the latest economic figure or geopolitical development. No matter how much uncertainty and market volatility cloud the way forward, history has shown that patient investors who stick to a well-considered and robust investment strategy benefit most.
Navigating 2025’s risk landscape
Looking ahead, 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. 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 at the same time:
Geopolitical risks
Ongoing global tensions that could impact the world economy and market stability;
Regional conflicts may affect global supply chains;
Trade tensions and protectionist measures as Trump rolls out his tariff plan.
Economic challenges
Possible inflationary pressures standing in the way of lower interest rates;
Potential recession risks amid tighter monetary policies;
High levels of government and corporate debt, which are already putting upward pressure on bond yields.
Market-specific risks
Continued market volatility, with the VIX Index, also known as the world’s fear gauge, rising;
Cybersecurity threats to financial institutions;
Politically-driven regulatory changes affecting the investment landscape.
Environmental and social factors
Climate change adversely impacting the economy and related policy shifts;
Social unrest and political instability;
Supply chain disruptions.
How to survive – and ideally thrive – during 2025
The key to investment success lies not in predicting market movements but in building robust, well-thought-out strategies that can weather various market conditions while remaining aligned with personal financial objectives. Core elements of an investment strategy to hold onto during 2025 include:
1. Maintain disciplined diversification
o Spread investments across different asset classes
o Consider both local and international exposure
o Balance investment portfolios across growth and defensive assets
2. Focus on investment quality
o Prioritise investments in fundamentally strong companies
o Consider sectors with proven resilience, such as healthcare and essential technologies
o Maintain exposure to both growth and value opportunities
3. Maintain a long-term perspective
o Avoid reactive decisions based on short-term market movements
o Stay invested through market cycles
o Focus on long-term financial goals rather than short-term market noise
Successful investing requires balancing caution with opportunity. 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.
As we move into 2025, it’s never been clearer that maintaining a disciplined, diversified approach while staying focused on long-term objectives will be crucial for investment success. This means not only making appropriate investment choices but also managing how we consume and react to market information.
By regularly consulting with a financial adviser and combining sound investment principles with disciplined information consumption and continuous learning, investors can better position themselves to achieve their long-term financial goals despite the market uncertainties – and a potential poly-crisis – that lie ahead.
