Jul 27, 2020
If you are going through hell, keep going.
I hope you are all coping with the challenges of life in lockdown and getting to grips with new ways of interacting professionally and socially. This is a new experience for most of us and sometimes I don’t know whether I live at the office or work at home.
2020 started well but the combination of the COVID-19 pandemic and Moody’s downgrade of South Africa’s sovereign debt to sub investment grade, has negatively impacted our economy, corporate earnings, employment and markets.
We have had to deal with unprecedented levels of volatility, including the fastest ever 30% decline in the S&P 500 (22 trading days from 19 February) and the worst ever month for our local bond market (-9.8% in March). The recovery has been almost as swift, with the strongest 50-day move for the S&P 500 since 1952 and the Nasdaq hitting a new high.
Our business and the portfolios we manage on your behalf have shown resilience through these difficult times. We were bold and agile enough to take advantage of opportunities created by the volatility, to improve the risk and return potential of the portfolios we manage on your behalf.
Risk assets have recovered significantly from their lows, helped by unprecedented monetary and fiscal stimulus. While Wall Street has recovered, “Main Street” has not and the outlook for growth and employment is dire, with South Africa on course for its worst recession in living memory. South Africa’s whole economy PMI (barometer of manufacturing activity) hit a record low of 32.5 in May and GDP could contract +/-10% in 2020 and take years to get back to 2019 levels.
We are committed to building a better tomorrow for our clients and their communities, so we have made a R50m donation to the South African Solidarity Fund and its counterparts in Botswana and Namibia and have matched staff members' charitable efforts – to date jointly contributing approximately R10 million to charities in our communities. We are also partnering with some of our large institutional clients in launching our South Africa Recovery Fund to provide funds across the capital spectrum to help save companies and jobs. We believe that the institutional savings industry has a key role to play in limiting the damage to our economy and helping its recovery. Our Recovery Fund is a once-in-a-generation opportunity to help mitigate the negative economic impact of the pandemic, while producing a commercial return. We are targeting to raise up to R10bn and already have significant commitments from interested clients. Please read my article in the newsletter for more details.
Our newsletter has something for everyone, with investment, personal and industry insights from our investment and client teams as well as our CEO, Hendrik du Toit.
Our 4Factor team responsible for our General Equity and Balanced strategies share their views on the Banking and Resources sector. Banks are optically cheap but Financials Sector Head Chris Steward and Portfolio Manager Rehana Khan, explain why a selective approach is required given the potential for credit losses even worse than the Global Financial Crisis.
Commodity prices have been impacted by supply and demand disruptions as well as fiscal and monetary policies. Portfolio Managers Unathi Loos, Daniel Sacks and George Cheveley are excited by the opportunities in precious metals, with gold shares in particular benefitting from central bank stimulus. They highlight how COVID-19 has speeded up existing trends in technology adoption to improve efficiencies, safety and progress towards “greener mining”.
Simon Howie, Co-Head of SA and Africa Fixed Income, highlights the dangers of chasing yield and relying on credit ratings in a market that is likely to see increasing defaults and explains the importance of active management and analysis to manage risks and capture opportunities in the SA credit market.
Our Quality team shares their views on two of their favourite ideas: Booking Holdings and ASML, which have had very different experiences through the COVID-19 pandemic and consequent lockdown. An online travel agent and technology hardware supplier are not obvious choices, but Clyde and Paul explain why they are top 10 holdings in our Global Franchise strategy and the offshore equity component of our Opportunity and Cautious Managed strategies.
Rehana Khan, who recently joined our 4Factor SA Equity and Multi-Asset team, shares her journey to portfolio manager, what she likes most about her new role and the questions investors should be asking about the next decade.
We end our newsletter with an edited version of a recent interview by Nerina Visser, President of the CFA Society South Africa with Hendrik du Toit, our CEO. They discuss the role of asset managers, not just as efficient allocators of capital but how they can benefit society as a whole, including encouraging entrepreneurship. Hendrik also covers the importance of diversity, inclusivity, curiosity and empathy as well as an appreciation of history.
Our thirtieth year will be remembered for the demerger of our business from Investec Group, our successful listing and rebranding, and the market reaction to COVID-19 and the consequent lockdown of the economy.
We are grateful for your continued support as evidenced by the strong net flows in our recently released maiden results as a listed company and look forward to partnering with you in growing your savings for many years to come.
Deputy Managing Director, Africa Client Group