Follow a structured process to phase capital into the equity market – Reyneke van Wyk
Published on 03 December 2020Risk of not being invested far outweighs being invested during weaker markets
It is important for long-term investors to participate in market rallies. The problem is they are very difficult to predict. By phasing-in capital at regular intervals, investors can participate more consistently in market rallies, according to Reyneke van Wyk, Stonehenge Fleming’s Head of Investment Management, South Africa. “Over the years, experience has shown us it is more effective to invest according to a scheduled plan, consistently feeding funds into the market at regular intervals, typically every two or four weeks,” he says.
When global equities surged by 4-9% in the days following the US presidential election it highlighted the importance of being invested in the market. “The subsequent news of an effective vaccine further boosted market sentiment and supported the rally. Those who were too conservative going into the election paid the price,” says Reyneke.
The fact is there are too many risks associated with trying to predict or ‘time’ the market he explains. “During a rally, it is tempting to wait before continuing to invest in the hope that something will happen to make markets drop and allow you to participate at lower levels, ready to ride the next wave. However, with equity markets growing over time, the risks for long-term investors of not being invested far outweigh the risk of being invested during weaker markets. Research shows that by missing the best ten days in the equity market over a 20+ year investment period, the annualised performance reduces by over 40%*. The best and worst days are also often clustered together during volatile periods.”
By following a disciplined process to phase into equities, says Reyneke, investors can reduce the timing risk, especially when investing from the position of 100% cash. “Typically, the objective would be to invest the portfolio fully within six months, starting with a third and adding at regular intervals.”
Discretion should be exercised, says Reyneke. If the market is volatile, the capital deployment can be adjusted accordingly while maintaining that regular flow. “If the market enjoys a good couple of weeks you might phase in a bit less, if it has a poor couple of weeks you could phase in a bit more,” he says. “Don’t try to be too clever with timing the market. Stay focused on the long term.”
*JP Morgan Asset Management & Strategas Securities
Reyneke van Wyk is a Partner and Head of Stonehage Fleming’s Investment Division in South Africa. He looks after the investment portfolios of a number of our family clients with substantial international wealth and chairs several family councils.
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I confirm I am accessing the website from the country indicated.
The following web pages contain information on Stonehage Fleming Global Best Ideas equity Fund. This fund is a collective investment schemes (CIS) managed by entities of Stonehage Fleming Investment Management Limited. This fund has not been approved by the Swiss Financial Market Supervisory Authority (FINMA) for distribution in or from Switzerland to Non-Qualified (retail) investors. The information contained in the following pages is only directed to "Qualified Investors" domiciled in Switzerland, in accordance with Article 10 of the Federal Act on Collective Investment Schemes of 23 June 2006 ("CISA").
By clicking on the button "I agree" you certify that: 1) you are domiciled in Switzerland 2) you are a ‘Qualified Investor’ in accordance with ‘CISA’. A ‘Qualified Investor’ is defined as:
We have appointed ‘ARM Swiss Representatives SA’ as our Swiss representative for these funds. The paying agent in Switzerland is Banque Heritage S.A. The Prospectus and the Articles, KIIDs and additional documentation including the annual and semi-annual report can be obtained free of charge from the representative in Switzerland. Full contact details are contained within the fund documentation.
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Reyneke Van Wyk
