Andriette Theron, Head of Research at PPS Investments

The global economy’s resilience in 2025 has been a pleasant surprise. Many anticipated a recession, yet growth held up and inflation declined enough for the US Fed to start cutting rates earlier than predicted. Another notable development was how well markets handled potential shocks. For instance, a brief flare-up in trade tensions caused only a short-lived dip. This strong risk appetite and rapid market recovery were surprising, showing that investors were more optimistic than we assumed.

Considering this optimism, we adopted a modest pro-growth stance in our portfolios, upgrading global equities to the bottom of our overweight band. Overall, we are incrementally more constructive but still keeping things balanced and flexible.

Our equity managers are having a decent year, with broader market participation helping even our more niche strategies. Hedge fund allocations, where applicable, have been a mild drag given the strength of traditional risk assets, but they continue to play a valuable role in diversification and downside protection.

We believe the AI-driven earnings cycle still has legs, and there is plenty of value outside the US. With the rand showing strength, it is also a good time to increase offshore exposure at lower risk. We have also upgraded global property to neutral, given its inflation sensitivity and rate dynamics. On the flip side, we downgraded global bonds to neutral as recession risks have eased, and the market may be overestimating how much the Fed will cut.

South African Equities deliver above expectation

South African equities delivered a major upside and was the standout contributor to absolute returns this year supported by our overweight positioning. We knew SA valuations were attractive, but the speed and extent of the rally (driven by a few heavyweight stocks) underscored how quickly sentiment can turn positive. Relative performance, however, was tempered by underperformance from some of our SA equity managers, an industry-wide challenge given the market’s narrow leadership.

Roughly two-thirds of the JSE’s rally has come from Basic Materials, especially gold and platinum stocks, which many managers have been underweight on due to quality concerns. Within SA bonds, our managers delivered solid results, though our tilt toward inflation-linked bonds over nominals slightly lagged peers.

South African assets remain attractive, though they are no longer the deep-value opportunity they were at the end of 2024. Back then, sentiment was low, valuations were depressed, and bond yields were elevated. Fast forward to now, and while SA equities have rallied strongly, earnings momentum is solid, and valuations still look reasonable.

The JSE is on track for its best year in two decades, with broad participation across rand-hedge and resource stocks. SA bonds continue to offer compelling real yields, around CPI+5%.

On the macro front, inflation is contained, growth is picking up, and the SARB is expected to cut rates further. Compared to many emerging and developed markets, South Africa still offers above-average yield and growth potential. The investment case remains solid, just less extreme than a year ago.

Hedge Funds valuable diversifiers

After three years of hedge fund exposure in our institutional portfolios, we introduced hedge funds into our retail solutions for the first time this year. These strategies play a key role in diversifying equity market risk and offering downside protection, while still aiming to deliver returns well above inflation over the long term. While hedge funds have lagged somewhat in this year’s strong equity rally, we continue to view them as valuable diversifiers that help manage downside risk and smooth portfolio returns over time.

On the private markets side, we began allocating in 2024 and have continued to deploy capital into areas like education and infrastructure, sectors we believe can drive meaningful economic impact locally. These investments align with our broader goal of investing with purpose, and we expect our alternatives allocation to grow steadily. Our focus remains on building resilient portfolios that perform across cycles while contributing positively to the real economy.

Positioning for 2026

We’ve recently repositioned portfolios to reflect a cautiously constructive view, while keeping flexibility front and center. While we expect short-term volatility, markets may correct given how strong they have run, we remain constructive on growth assets over the next 12 to 18 months. This position is informed by resilient global growth, easing monetary policy, and receding recession risks.

While the macro backdrop supports a constructive view, we are cautious of high valuations and the psychological challenge of adding risk after strong performance. We have reduced global bond exposure and have modestly increased our exposure to property and equities, particularly where valuations remain reasonable.

Cash remains a useful tool for optionality, and we continue to rely on our underlying managers to lean into the best opportunities across regions and sectors. Our risk budgeting reflects this balance: we are not maxing out risk, but we are positioned to participate in upside.

Additionally, the continuous assessment of our managers’ strategies is crucial for navigating uncertainty and managing risk. We regularly evaluate whether the strategies are still delivering the expected results and providing the necessary diversification. This ensures that our portfolios stay aligned with their objectives, no matter which way the market turns.