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Capital growth still disappoints

Johannesburg - Although cash should continue to be seen as a "trashy" asset class, investors do not have many other places where they can park their money.

That's according to Peter Brooke, head of macro-economic strategy at Old Mutual Investment Group SA (Omigsa), who pointed to prevailing low interest rates in developed economies and added he is expecting negative returns from most government bonds as well.

"It is a low return world and we need to get that message out there," Brooke said on Tuesday.

With cash and bonds not offering much, the alternative would be investment in equity markets, but even these don't look particularly attractive from a valuation perspective, he said.

"Markets are not a dripping roast yet," Brooke said.

According to a recent poll conducted by Omigsa among analysts and financial planners, as much as 80% of investments would have to be held in equities to generate returns similar to those seen over the last decade, implying investors would need to take on far more risk. "(Most) investors will be disappointed," he said.

Brooke said he had been positioning his portfolios towards high dividend-yielding stocks in line with his view that there would be limited capital growth in the near term.

Stocks which had been added to the portfolio recently included Nampak [JSE:NPK], British American Tobacco (BAT) and Metropolitan Holdings [JSE:MET].

"If you are earning zero, then the money has to go somewhere," said Andrew Canter, chief investment officer at boutique asset management firm FutureGrowth.

Hedge funds hedged in by laws

He said his business had seen some opportunities in the corporate and government debt markets. However, it was spending a great deal of time assessing the credit quality of the institutions issuing debt.

Asked whether other asset classes such as private equity may provide alternative options for retail investors, Brooke and Canter had mixed views.

Private equity transactions often involve businesses operating in the unlisted environment. These are less accessible to retail investors, unless they go through a listed private equity business like Brait, or invest in some of the specialist high-end funds.

Brooke felt there was less "cheap" capital around, which might hamper the ability of firms to do deals in the near term. Canter, however, countered that private equity firms he had been in contact with were continuing to pick up unlisted businesses relatively cheaply compared to listed businesses.

Another asset class Brooke felt would help investors diversify their portfolios was in the hedge fund space, but he acknowledged that South African legislation around products in this sector would still need further development to make them more accessible to retail investors.

 - Fin24.com

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