Ninety One’s Duane Cable finds more value in quality stocks than he has in over a decade.

Cable, who is the South African quality manager of Ninety One, expressed this view at the BCI Global Investment Conference. Cable co-manages the R17 billion Ninety One Cautious Managed fund with Sumesh Chetty.

“Certainly, for those who have had a quality investing philosophy like us, the past year has been incredibly difficult as there has been a rotation in the market from quality to value and cyclical stocks. However, we think it has worked a lot and we find more value in the quality stocks we invest in.

Global Equities

Source: ninety-one.

Over the next five years, Ninety One expects global equities to be the best performing asset class, with annualized returns starting at 10%.

“Global equities were the winning asset class. However, the consensus is that global equities have turned too much and valuations are full. As a result, the point of view is that there is no value in global. Whereas, in our opinion, through bottom-up analysis, we are finding value in high quality global stocks, ”Cable said.

“When we look at the concentration of high quality global stocks that have significantly underperformed over the past year, given the rotation to value, we certainly see tremendous value in quality. So in terms of rand, we expect to generate healthy returns in global equity markets, ”he added.

Avoid too much risk

Cable cautioned investors against taking too much risk in pursuit of targeted returns.

“South African liquidity is likely to underperform other assets over the next 12 months, forcing investors to move up the risk curve further. Cash yields have been quite good and well above inflation. But with the 300 basis point drop that we have seen in interest rates, investors can no longer hide in the money, ”he said.

Cable said South African stocks offered a selective upside, with specific counters and sectors looking attractive.

“We find South African stocks to offer value, but it comes with more risk. Some market sectors are hot, where valuations are quite expensive, and the decline is quite large. In some pockets of the market we find good value. Investors need to be fairly selective in their national equity allocations. ‘

Local obligations

On local bonds, Cable said: “Certainly [we prefer] bonds versus cash, despite all the negativity around tax, and where we are going as an economy. Bonds have generated good returns for investors. Our view is that bonds provide investors with a good deal of income in the future. But it is not without risk and bonds should be part of a balanced portfolio. ‘

Over five years, Ninety One has remained “constructive” on the outlook for South African government bonds. The fund manager preferred nominal bonds over inflation-linked bonds, especially for longer maturities.

Regarding the rand, Cable said the local unit provides investors with a good entry point into offshore markets.

“The rand is only one consideration, and investors should be selective in their approach given the valuation risks.”

Domestic property

Ninety is “pretty bearish” on the domestic real estate asset class, Cable added.

“Unless you have a very optimistic long-term view for South Africa and how some real estate stocks are dealing with fundamental structural challenges and how they are remedying their balance sheets, in the end, it’s is too risky for our portfolios. So we have a very small allowance for domestic ownership.

This article first appeared on Citywire South Africa here, and republished with permission.