Taking Stock Winter 2021

Welcome to Taking Stock

Where to from here for investors as we enter a period of slowing global growth?

Aug 25, 2021

6 minutes

Sangeeth Sewnath
Where to from here for investors as we enter a period of slowing global growth?
 
“He who wishes to be rich in a day will be hanged in a year.”
Leonardo da Vinci

I was recently struck by this rather chilling quote while reading the biography of Leonardo da Vinci by Walter Isaacson, a rich narrative drawn from Da Vinci’s astonishing notebooks (estimated to consist of between 20 000 and 28 000 pages of notes and sketches). The quote is admittedly a dramatic introduction to an investment newsletter, but it remains pertinent. Even 500 years ago, there were no shortcuts to achieving long-term investment success!

Da Vinci described himself as a disciple of experience. Being largely self-taught, his genius depended on his insatiable curiosity, keen observation skills and experimentation, which helped him develop an empirical approach to learning. It is an interesting counterpoint to the age in which we live today, where information is freely available, and curiosity can be so easily satisfied. Nonetheless, the most important learning I took from this book is that one of the common traits found among people who achieve success in life – whether in sales, investment or business – is curiosity.

This is aptly demonstrated by Clyde Rossouw’s article in this issue, in which he reflects on the ten investment lessons he’s learnt during his more than 20 years of managing money. No doubt, his curiosity greatly contributed to the valuable experience (and wisdom) he has gained. Hopefully, you will be equally curious to learn about these lessons, and how they have helped Clyde successfully navigate markets over his career.

Turning our attention to recent market performance, returns were decidedly more muted over the second quarter. The 12-month performance, however, remains attractive, with the FTSE/JSE All Share Index delivering 25%, the All Bond Index gaining 14% and the MSCI All Country World Index returning 15% in rand terms (as at end June).

The more pedestrian second quarter performance reflects concerns that growth is slowing.

The more pedestrian second quarter performance reflects concerns that growth is slowing. A recent report by Gavekal Research1 suggests that growth has peaked, and that in the US in particular, it is set to go from “great to good”. In this environment, they believe cyclicals and the lockdown boom stocks are likely to struggle. On the upside, however, they point out that strong demand and tight capacity will spur capital spending, while the manufacturing sector is enjoying an ‘epic restocking cycle’.

Why do I mention this? We believe this environment really sets the stage for quality investing. Our Quality portfolio managers here in South Africa are currently fairly unique among domestic managers given their preference for global equities and SA bonds over SA equities.

There are nonetheless opportunities to be exploited in the local equity market. Hannes van den Berg explains in more detail how the Ninety One Equity Fund is positioned now that we’ve moved from the exuberant initial rebound to a mid-cycle slowdown.

We still saw net flows into our multi-asset funds.

How have investors responded to the changing environment? The big trend in unit trust flows over the last quarter was the sustained appetite for offshore and high duration fixed income funds. Although we still saw net flows into our multi-asset funds, as a whole this sector continued to bleed. While there were tentative signs that we were moving into a slightly more risk-on environment, these green shoots were unfortunately entirely undone by the violence and looting in July.

You may have noticed in the press that Ninety One recently became the first South African investment manager to sign up to the Net Zero Asset Managers Initiative. Our decision to sign up was not taken lightly. Indeed, our motivation to join was to help effect a transition towards net zero that would work for all of the world’s 7.9 billion people, not just the developed world. Be sure to read the article by Nazmeera Moola in which she sets out our approach to net zero and why it is critical for South African investors to take heed.

Before I conclude, we are encouraged by the flows into our multi-asset and income funds, and we are working hard to retain our number one rating in the PlexCrown survey. As you are aware, we are celebrating our 30th anniversary this year. We continue to build on our long-term track record and as ever, remain committed to delivering good investment outcomes to you.

Thank you for your continued support. Stay safe and curious.

Sangeeth Sewnath
Deputy Managing Director

 

1 Gavekal Research, Strategy Monthly: Dialing down expectations for US growth, July 2021.

Authored by

Sangeeth Sewnath
Deputy Managing Director

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