You may be forgiven for thinking that January felt like month 13 of 2020, or that you were stuck in a particularly bad version of Groundhog Day. And while there is no denying that we are still firmly in the grip of the pandemic, there is always reason for hope. Nobody conveyed that message better than the incredibly talented young poet laureate Amanda Gorman, who stole the show at Joe Biden’s presidential inauguration.
As we all come to terms with the pain caused by the events of the last year, let’s take a moment to reflect on her words:
That even as we grieved, we grew
That even as we hurt, we hoped
That even as we tired, we tried
That we'll forever be tied together, victorious
Not because we will never again know defeat
but because we will never again sow division1
We can all take inspiration from this wonderful poem, as we navigate what is likely to be another challenging year ahead.
It will probably take decades for us to fully understand the extent to which COVID-19 changed life as we knew it. One interesting (and possibly unexpected!) statistic coming out of the US is that there were 300 000 less births registered in 2020 than 2019. Dubbed the “baby bust” year, the birth rate declined between 7-10% year on year. An ageing population presents significant macro challenges – we know that healthcare costs rise, labour-force participation declines and overall expenditure increases. It is also important to consider the implications of changing population dynamics for those planning or helping others plan for retirement.
As an aside, it appears that South Africans kept soldiering on, as our birth rate only appears to have declined by 2%!
Turning to the markets, the recovery has been nothing short of astounding. Global equities returned 16% in US dollars, while SA equities posted gains of 7% in rands. What is really staggering, however, is the 72% surge in global equities from their lowest point in March to end in positive territory by year-end. With returns like these, who would have thought the economic and health crisis was not yet over?
The SA equity market also posted an impressive 67% gain from its low in March. Meanwhile, the relative appeal of cash continues to wane, with returns dropping to 5.4% over the year. This highlights an important lesson for those providing financial advice. Many investors, who took fright after the March equity market collapse and switched to the perceived safety of cash, would have locked in their losses.
Another investment theme dominating headlines is the rotation from growth into value stocks towards the end of 2020. Is it set to continue? Look out for Duane Cable and Clyde Rossouw’s article in which they set out how they’re maintaining their Quality discipline in this changing environment.
Hannes van den Berg, Co-Head of SA Equity & Multi-Asset, addresses the other key question on the mind of SA investors – what is the outlook for SA Inc stocks and when is the correct entry point?
It is also opportune, following the end of a year, to review where investors had invested their money. Based on estimates by Morningstar, the collective investments industry saw approximately R130 billion in net flows. Unsurprisingly, given the pandemic-induced economic and market shocks, approximately half went into money funds. The other half was split roughly equally between offshore equities and domestic fixed income funds.
The biggest losers were the multi-asset high equity and multi-asset low equity sectors. I believe we should see a reversal of sorts this year, with offshore funds also likely to remain big beneficiaries of flows. Remember too, the tax deadline is upon us, so don’t forget to top up your and your clients’ TFSAs, if you haven’t done so. Be sure to read Jaco van Tonder’s article on making the most of your TFSA.
2021 will be a momentous year for our firm. Not only does it mark our first anniversary as Ninety One, but we also celebrate our thirtieth year in business. If there’s one thing we’ve learnt over the years, it is that wealth takes a long time to create, but it can be destroyed very quickly. Make sure that what you may have spent twenty or thirty years building, isn’t destroyed by a single bad decision.
To future-proof your business, you must develop it to where you see the market going, rather than where it is. We are fortunate to have had visionary leadership, which led us to build a formidable global business relative to many of our competitors. We believe this has been a key differentiator for us.
While we’re not about industry accolades, it was a wonderful honour to win the prestigious Raging Bull Award for South African Manager of the year this month. It demonstrates our unwavering commitment to delivering good investment outcomes for you over the long term.
With the positive returns having masked the massive market swings and economic pain of last year, it almost seems as if we can brush over the last year. However, history will judge us based on what we do this year and beyond. And as our CEO Hendrik du Toit put it last year, we want to ensure that we stay on the right side of history.
In conclusion, I want to leave you with these words from Amanda Gorman’s “The Hill We Climb”:
When day comes we step out of the shade,
aflame and unafraid
The new dawn blooms as we free it
For there is always light,
if only we're brave enough to see it
If only we're brave enough to be it
Let’s face the future with bravery and humility. Thank you for your continued support and engagement with us.
Deputy Managing Director
1 Read the full text of Amanda Gorman’s poem here.