The rise of blended portfolios among South African investors

South African investors are increasingly recognising that traditional investment approaches alone may no longer deliver the returns and stability needed in today's complex markets. This shift has driven significant growth in structured products and alternative investments, with wealthy individuals leading the charge towards more diversified portfolio strategies.

Recent data reveals that South Africans have invested R17.5 billion into structured products in 2024, marking a return to levels last seen in the 1990s. This surge reflects a broader trend towards portfolio sophistication, as investors seek security and certainty while maintaining growth potential.

The investment landscape has transformed dramatically over the past decade. There's been this myth that alternatives are only reserved for larger portfolios and pension funds. But we're seeing a fundamental shift where investors understand that a truly resilient portfolio requires a blend of traditional and alternative assets.

The evolution extends beyond wealthy individuals. Retail investors now have unprecedented access to investment strategies that were once the preserve of institutional players. This democratisation of investment opportunities comes at a crucial time, as South African equities and bonds continue to experience prolonged volatility.

There should be a holistic approach to portfolio construction that embraces both traditional and alternative investments. From a South African perspective, your investment portfolio should have an allocation to equities, bonds, cash, offshore exposure, and alternatives. The percentage allocations depend on your personal risk profile and income needs.

 The appeal of blended strategies lies in their ability to smooth investment journeys. Alternative investments typically demonstrate lower correlation to stock market movements, providing stability during turbulent periods. When combined with traditional assets, they create portfolios that are more resilient and better equipped to weather market volatility.

Infrastructure development and renewable energy have emerged as particularly compelling opportunities within the alternative space. South Africa's transition to sustainable energy solutions and the government's openness to independent power producers have created significant investment prospects. Similarly, the technology sector, driven by digital transformation needs across industries, presents opportunities for those willing to look beyond traditional equity markets.

 However, it is important to understand the characteristics of different asset classes. Private equity isn't listed on the exchange, so liquidating positions isn't as straightforward as in the listed environment. If you plan for that and incorporate it into your five-year or seven-year investment horizon, it provides excellent portfolio enhancement. It means that if there’s even a marginal improvement in underlying conditions, there’s less volatility in your portfolio, and you stand to derive equity-type returns.

 Many South Africans are particularly drawn to the protection offered by offshore investments, seeking to benefit from global market exposure while maintaining capital protection features, but there are still local opportunities if you know where to look. 

Wherever there's a problem, there is an opportunity to fix it. South Africa faces some challenges, but with proper homework, a bit of skill, and strategic thinking, investors can position themselves advantageously.

The upshot is that in an environment where traditional strategies may fall short, a thoughtfully constructed portfolio that blends conventional and alternative investments offers the best prospect for achieving long-term financial objectives. As the investment landscape continues to evolve, those who embrace this sophisticated approach will be better positioned to navigate uncertainty while capturing growth opportunities.

* Van Loggerenberg is the CEO of IFSA Asset Managers.

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