Minting it in the next decade

The next decade is likely to usher in a shift as global central banks gradually reduce the flow of free money that has propped up high equity valuations worldwide. With starting yields on fixed income assets higher today than they were a decade ago, investors are contemplating where to allocate their capital for optimal returns in the coming years. To delve into this topic, CNBC Africa interviewed Sean Neethling, the Head of Investments at Morningstar South Africa. Neethling provided valuable insights into potential investment strategies for the future. Neethling emphasized the relevance of reevaluating the traditional 60-40 split between equities and fixed income in asset allocation theory. While the 60-40 portfolio remains pertinent, Neethling suggested a more nuanced approach within these allocations. He highlighted the importance of diversifying equities beyond the U.S. market, particularly emphasizing opportunities in emerging markets, Europe, and the U.K. Neethling also recommended a careful breakdown of fixed income investments, considering investment-grade credit, high-yield credit, and government bonds. The discussion then shifted to the prominence of U.S. tech companies in recent years. Neethling acknowledged the quality and innovation of these tech giants but cautioned against their current valuations, advising a measured approach to exposure. While maintaining some allocation to U.S. tech, Morningstar is underweighting the sector due to stretched valuations. Neethling encouraged investors to explore less popular market segments, such as U.S. financials, as potential sources of value. On the fixed income side, Neethling expressed optimism about South African bonds, citing attractive implied returns. Despite increased risks associated with liquidity and interest rates, Neethling views South African bonds as a compelling opportunity for investors, particularly given the significant increase in cash rates. He recommended a balanced approach, incorporating both short-term cash positions and longer-term bond investments to optimize portfolio returns. Neethling's insights provide valuable guidance for investors navigating the evolving investment landscape in the next decade.