How do you grow your investment returns in a low-growth world?

In a world where economic growth is slowing and uncertainty is increasing, investors may want to protect their portfolios, especially if they are predominantly in equity. But what are your options for growing your investment returns in this environment?

Global growth was revised down 3% for 2019 and 3.4% for 2020 by the International Monetary Fund (IFM) in its October 2019 World Economic Outlook (WEO). The 2019 forecast is the slowest rate of global expansion since 2008/2009, and the IMF warned of the risk of continuing slowing growth rates. Interest rates are also no longer expected to rise.

South Africa’s growth rate is even more dismal, forecast to be 0.7% this year and 1.1% in 2020 - well below the country’s population growth, suggesting we won’t grow jobs or increase income levels.

This points to an economy where it is increasingly difficult for corporates to flourish and profit margins are under pressure. The lack of meaningful earnings growth among a large swathe of companies listed on the Johannesburg Stock Exchange (JSE) is expected to continue.

How do investors grow their investment returns with offshore investments?

South Africa’s economy represents only 0.6% of global gross domestic product (GDP), making it clear that offshore investing, either directly or via an offshore feeder fund, is the only long-term growth solution for investors.

But in a slowing growth world, investors might be reluctant to have exposure to global equities. Investors will also want to mitigate the risk of currency volatility, especially given the volatility of the rand.

A global multi asset fund may be a suitable investment vehicle in these uncertain times. Many investors choose multi-asset funds as a lower-risk investment than an equity fund, but with greater prospects for growth than a bond or money market fund.

The Ashburton Global Growth Fund (USD), denominated in United States (US) dollar, is designed as a moderate to higher-risk strategy for investors who have an appetite for an increased level of risk. This flexible solution allows global equities content to fluctuate between 40-75%, while fixed income is restricted to a maximum of 60%, giving investors access to global growth opportunities.

What are multi asset funds?

Multi asset funds invest in multiple asset classes, including equities, bonds, cash and, potentially, alternative investments such as property and infrastructure. This allow them a greater degree of diversification than they would achieve by investing in a single asset class.

The weighting towards each asset class, and choice of asset class, depends on the fund manager working within the regulatory limits. By diversifying across many asset classes, funds are exposed to different risk factors, which helps to reduce volatility. Offshore fund exposure also helps to reduce the currency risk of being invested only in rand-denominated assets.