South African investors are often reminded of the importance of patience. After several years of underperformance, local equities (as represented by the JSE All Share Index) delivered 42.4% in rand terms last year, with momentum carrying into January. Positive sentiment has remained supported by attractive valuations and a meaningfully improved economic backdrop. Higher commodity prices have strengthened the trade balance, while S&P Global’s credit rating upgrade and South Africa’s removal from the grey list have bolstered confidence in the local outlook. On fundamentals alone, the local market is in a far stronger position than it has been for some time.
However, investing has never been about fundamentals alone.
Global markets are being shaped by forces that are difficult to forecast with confidence. Geopolitical tension, political uncertainty and rapid technological disruption are driving abrupt changes in sentiment, often overpowering country and company-level fundamentals in the short term. Recent strength in traditional defensive assets such as gold and silver reflects this environment, with investors seeking protection against risks that are hard to quantify.
For South African investors, this creates a familiar dilemma. While local opportunities may look compelling, concentrating portfolios too narrowly leaves investors exposed to “what if” scenarios – currency shocks, global risk-off events or political developments that can quickly overwhelm local fundamentals. This is where diversification moves from being a theoretical concept to a practical necessity.
Geographic diversification: protection and opportunity
Blending local and global unit trusts is not about abandoning South African assets when they appear attractive. It is about recognising that risk is unevenly distributed across regions and that global exposure plays a dual role. Including global exposure spreads risk across different economic drivers and reduces reliance on any single market outcome, whilst providing access to long-term structural opportunities that aren’t readily available in South Africa such as global technological leaders to healthcare innovators and infrastructure assets. In this sense, geographic diversification plays both a defensive and an opportunistic role within a portfolio.
When markets defy fundamentals
The need for diversification becomes even clearer when markets stop behaving as expected.
Recent volatility in global software stocks is a case in point. Advances in artificial intelligence (AI) have raised questions around long-term business models, competitive dynamics and pricing power. And in some cases, the scale and cost of AI-related investment has unsettled markets even where earnings and cash flows remain robust.
This disconnect between fundamentals and performance is not limited to sectors. It is equally evident across investment styles.
Quality strategies focus on companies with strong balance sheets, sustainable free cash flows and consistent earnings growth – characteristics that should in theory, perform well during uncertain periods. Yet more recently, quality has lagged the returns of global markets despite underlying company fundamentals remaining intact.
This lesson is important: markets can move in ways that defy expectations for prolonged periods and do not always reward fundamentals when investors expect them to.
Blending styles to manage risk
This is precisely why blending different unit trusts remains so effective.
Growth, value and quality strategies operate in different cycles and respond to different drivers. Growth may benefit from optimism and innovation, value from re-ratings and mean reversion, and quality from balance sheet strength and earnings resilience. Combining these styles reduces reliance on a single market narrative and helps smooth portfolio outcomes through changing environments.
Importantly, blending does not eliminate volatility, but reduces dependence on any one market narrative and limits the risk of being positioned “correctly” on fundamentals but poorly on timing which few get right anyway.
Diversification as insurance
In many ways, diversification functions like insurance.
People insure their homes, their income or their lives not because they expect something to go wrong tomorrow, but because the cost of being unprotected when the unexpected happens can be severe. Insurance exists to protect against the events that cannot be reliably predicted.
Blending unit trusts, whether it be different geographies, investment styles or asset classes, serves the same purpose in a portfolio. Investors diversify not because they believe every allocation will outperform at the same time, but rather to avoid being exposed when markets behave in ways no one anticipated.
How Curate enables effective blending
At Curate, this philosophy is embedded in the way our fund range is designed. The range allows investors and advisers to blend across asset classes, investment styles and geographies, and to construct portfolios that align with different risk profiles.
By combining specialist managers with clearly defined roles, Curate’s approach supports resilient portfolio construction – not just when conditions are favourable, but when markets behave in unexpected ways.
In an environment where opportunity and uncertainty coexist, blending unit trusts is not about being cautious. It is about being prepared.
Curate Investments (Pty) Ltd is an authorised financial services provider (FSP No. 53549). Registration number 2023/747232/07.
