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Who would have thought one could draw a parallel between the behaviour of viruses and investing?

Aug 12, 2020

5 minutes

Who would have thought one could draw a parallel between the behaviour of viruses and investing?

I recently read “The Great Influenza” by John M. Barry. While it was published back in 2004, it could not be more relevant today: a century after the flu outbreak of 1918, we are again facing off against a global pandemic likely to change the course of history. Like today, people went into isolation, industry ground to a halt and health workers put their lives on the line to save others. An estimated third of the global population contracted the dreaded Spanish Flu, and 20 to 50 million people died.

There are many lessons to be learnt from this book, not least of which is that the world needed to do a better job of preparing for the next pandemic. It was a matter of when, not if. A relatively unknown fact I learnt was that it was not a vaccine that ultimately halted the spread of the Great Influenza, but the fact that the virus mutated into mildness. In short, it became less deadly.

Barry explains how the virus – as with many things – reverted to the mean over time; in other words, from its extreme in 1918, its mutations made it increasingly less lethal. Who would have thought one could draw a parallel between the behaviour of viruses and investing? While a crisis will cause investment returns to vary – sometimes wildly – from the norm, over the longer term they ultimately revert to the mean. If you look at data from the last 120 years, global equities have provided real returns of 6.5% per annum in rands and SA equities have delivered real returns of 7.1% per annum. The theory of mean reversion suggests that a market dip will in due course be followed by a recovery, and those investors who are patient and who have the right asset allocation will benefit in the long term.

Negative returns are more widely reported and are harder felt by us than positive returns.

I used my time over lockdown to double down on my reading and two other books made an impression on me with insights that are pertinent to how humanity has responded to the crisis. Both Yuval Harari (“21 Lessons for the 21st century”) and Hans Rosling (“Factfulness: Ten reasons we’re wrong about the world”) explore the concept that humans are not built for satisfaction, and that we anchor to things getting worse rather than getting better.

Negative returns are therefore more widely reported and are harder felt by us than positive returns. However, if you look at the last quarter to the end of June, the FTSE/JSE All Share Index delivered 23.2% (incidentally its best quarterly return in almost 20 years). It shrugged off much of the negativity experienced in the first quarter and delivered a year-to-date number to end June of -3.2%. Global equities, as represented by the MSCI All Country World Index, returned 16.5% in rand terms over the six months.

Nevertheless, the market shocks have resulted in many advisors considering guaranteed annuities for both existing and new pensioners. Jaco van Tonder, Advisor Services Director, evaluates the different types of guaranteed annuities on how they deal with the various risks pensioners face. Our industry has too many examples of overly complex product designs that often only serve to obscure costs, but the key starting point when considering any guaranteed annuity is to understand which of the options would be appropriate for the situation.

We have built one of the only truly globally integrated investment businesses in South Africa.

We believe a big contributor to our success in generating meaningful investment outcomes for our clients is that over the last 23 years, we have built one of the only truly globally integrated investment businesses in South Africa. As Duane Cable, Head of SA Quality, explores in more detail in his article, we believe this integration allows us to retain talent across our business and removes home biases. It means our investment decisions can be made holistically, ultimately helping us to build better portfolios.

Our investment performance across our investment offering bears this out. Our Quality range of funds – comprising the Ninety One Opportunity, Global Franchise Feeder and Cautious Managed Funds – have been top quartile performers over all meaningful periods. All three funds have delivered strong absolute returns over the last 12 months (10.4%, 33.5%, 9.6% respectively, net of A class fees, as at the end of June). What is especially encouraging is that the Opportunity Fund has outperformed its sector 96% of the time over rolling three years and by as much as 4.1% per annum. (Who wouldn’t like to get 96% in a test!) The Cautious Managed Fund has outperformed its sector 88% of the time and the Global Franchise Fund has outperformed its benchmark, the MSCI All Country World Index, 87% of the time over rolling three years.*

We continue to be very vigilant in eking out extra returns for your clients.

However, another learning from Barry’s book is that one should never claim victory in the midst of a crisis. We continue to be very vigilant in eking out extra returns for your clients. And as Hendrik du Toit, our founder and CEO, said in a recent interview, “Curiosity and humility are important. If you’re not humble, the market will humiliate you.” Look out for an update from him in which he reflects on the short-term challenges amid the pandemic and the longer-term opportunities after almost 30 years of running our business.

As ever, we are thankful for your support. While it has only been five months since we changed our name, you have really taken up the mantle to help spread the word to your clients. We truly appreciate it.

We’re energised by the role we play in making sure the world gets back to work, both as stewards of your capital and responsible corporate citizens. We remain committed to efforts to help restore our economy and communities. On that note, please remember to lace up your running shoes or don your lycra on 5 September and join our virtual running and cycling challenge. We are hoping to raise a further R1 million for five fantastic charities. Ninety One will match all contributions.

Helping to restore our economy and communities

Helping to restore our economy and communities

Stay safe. Wishing you and your loved ones good health and great investment outcomes.

Sangeeth Sewnath
Deputy Managing Director

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*Past performance is not a reliable indicator of future results, losses may occur. Source: Morningstar, dates to 30 June 2020, performance figures are based on a lump sum investment, NAV based, inclusive of all annual management fees but excluding any initial charges, gross income reinvested. Cautious Managed inception date A share class: 31.03.06; Opportunity inception date A share class: 28.04.20; and Global Franchise Feeder Fund inception date A share class: 2.07.01. Annualised performance is the average return per year over the period. Highest and lowest returns are those achieved during any rolling 12 months since inception. Cautious Managed A: Feb-10: 23.8% and Feb-09: -6.8%; Opportunity A: Jul-05: 43.8% and Feb-09: -15.7%; Global Franchise Feeder Fund A: Mar-02: 45.0% and Mar-03: -40.0%. †Inception date: 10.04.07. Highest and lowest returns for Global Franchise A Acc are those achieved during any rolling 12 months since inception: Feb-10: 54.4% and Feb-09: -38.7%.

Authored by

Sangeeth Sewnath

Deputy Managing Director

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