Nedbank Private Wealth on investing in COVID-19 uncertainty

The global economy is facing unprecedented challenges with the COVID-19 pandemic plunging the world into a deep recession and causing massive turmoil in the financial markets. In a recent interview on CNBC Africa, Andrew Mackenzie, Head of Portfolio Management at Nedbank Private Wealth, shared valuable insights on how investors can navigate these uncertain times and make informed investment decisions. Mackenzie highlighted the importance of focusing on the long term despite the current uncertainty, emphasizing the need for a diversified investment strategy. One of the key points Mackenzie raised was the structural impediments that South Africa's economy has been facing even before the pandemic. With debt levels rising and growth stagnating, companies have struggled to generate sustainable growth. This challenging environment has led Nedbank Private Wealth to adopt a cautious approach, being slightly underweight on risk assets like equities and holding more cash and offshore assets. The need for diversification is crucial in such a volatile market environment, both in terms of offshore investments and within local portfolios. Diversification, according to Mackenzie, involves splitting assets based on risk profiles and asset allocations. By holding a mix of offshore and local investments, investors can spread risk and limit the negative impact of market volatility. Mackenzie highlighted the importance of holding a variety of assets, such as offshore companies like Nasdaq and British American Tobacco, to enhance portfolio diversification. Government bonds have also emerged as a compelling investment option in the current scenario. Mackenzie noted that bonds traditionally provide stability and income during market downturns, serving as a valuable component in investment portfolios. With company earnings and dividends under pressure, government bonds offer a reliable source of income. Despite South Africa's recent downgrade to junk status, Mackenzie believes that bonds still present an attractive opportunity, providing yields of around 10 to 11.5% with a real return of 6% to 7%. In a low inflation environment, fixed income assets like bonds offer an attractive risk-return profile. As investors grapple with uncertainty and market volatility, Mackenzie's insights offer a pragmatic approach to navigating the current investment landscape. By staying focused on long-term goals, maintaining a diversified portfolio, and exploring opportunities in government bonds, investors can weather the storm and position themselves for future growth. Nedbank Private Wealth's strategic approach underscores the importance of prudent risk management and a careful evaluation of investment options in challenging times.