At the start of 2024, we cautioned that this year would be the one to focus on the trendlines, not the headlines. With the world in flux, it’s easy to get caught up in the hype – whether it’s elections, the spectre of war, AI, or misinformation. Headlines are fleeting, but trends are more enduring, so we’ll keep reminding you to remain curious and seek the truth.
With this notion in mind, I recently read the book “The World in 2050: How to think about the future”, by Hamish McRae. It reinforced many themes that we have been considering as a business. Firstly, that the five Ds – which we also spoke about at our Taking Stock roadshow in February – will shape the world for the next 30 years. They are demography, debt, digitalisation, decarbonisation and deglobalisation.
Secondly, McRae underscores the critical role of choice. Whether we believe in a path of progress or one marred by collapse, the decisions we make, both individually and collectively, carry profound implications for the future. From the perspective of financial advice, just consider how the choices you help your clients make today influence their future outcomes.
He also digs into the implications for the global economy when the population swells from 8 to 10 billion. This got me questioning whether we really need the number of people to keep growing to sustain how we live and what we do, or whether we can imagine a world with no population growth, yet one in which we can keep the economic wheels turning.
Overall, however, McRae’s book is optimistic about the world’s capacity for improvement in the next 30 years. In the final chapter, while he expresses fears about the US and China mismanaging their relationship, the likelihood of another financial crisis and Russia overplaying its hand, he remains quietly confident that the human spirit will prevail, and that human progress will be sustained. Interestingly, he is surprisingly upbeat about the future growth potential of Africa and India.
We’re excited to hear more from McRae, as he is billed to speak at our Global Investment Conference in London next month. Unfortunately, the event is oversubscribed, but we’ll be sure to share more of his insights with those of you not joining us.
But back to the here and now: 2024 is undoubtedly the year for democracy, as more than 70 countries head to the polls. In this edition we explore the impact of elections on markets, and why sitting on the sidelines is not a good idea. Yes, increased volatility is a given, but the likelihood of asymmetric returns suggests that the rewards outweigh the risks.
Be sure not to miss the article by Clyde Rossouw, in which he reflects on the lessons learnt over nearly 3 decades of investing. Clyde celebrated his 21st anniversary as Portfolio Manager of the Ninety One Opportunity Fund earlier this year, and it was fitting that the fund also won the award for best moderate allocation fund at the Morningstar Awards for Investing Excellence in the same week.1 Many portfolio managers can generate attractive returns over 1 and 3 years, but to consistently do it over more than 2 decades takes some doing.
Meanwhile, the environment remains tough. We’ve been tracking industry flows for about 15 years, and this is the first time that they have turned negative over any calendar year. The unit trust industry saw outflows of R21 billion in 2023, excluding reinvestments, so if you’ve found the going tough, you’re not alone.
The big question we get from advisors is where the money is going if not into collective investment schemes. Household bank deposits were a big beneficiary of flows historically, but they haven’t grown materially over this period.
As we discussed in a previous note, we believe there are three broad recipients – firstly, with persistent load-shedding, households and corporates have directed investment towards alternative energy, including inverters, solar panels, and lithium batteries. Secondly, in an environment of rapidly rising rates and inflation, we can’t underestimate the extent to which the cost of living and debt servicing has spiralled. And finally, given the high interest rates and attractive outcomes from fixed income investments, guaranteed annuities and structured products have grown in popularity.
Before I sign off, I was disappointed to note that a recent study by DALBAR, a financial services market research firm, has yet again proven that investors continue to act contrary to their own best interests. DALBAR’s Quantitative Analysis of Investor Behaviour study, now in its 30th year, measures the effects of investor decisions to buy, sell and switch into and out of mutual funds.
Sadly, the results of the study don’t really change. Due to their behaviour, investors earn less – in many cases, much less – than mutual fund performance reports would suggest. In 2023, the US equity market was up 26.3%, whereas the average equity investor realised only 20.8%. This means that their behaviour cost them 5.5% last year alone! This cost is also evident across fixed income and multi-asset investors.
No doubt, South African investors behave in much the same way. Therefore, the behavioural role played by financial advisors is critical, especially during periods of increased market volatility and uncertainty, and during market corrections.
In conclusion, never underestimate the value you add to your clients in helping them stay the course.
Thank you for your continued support.
Sangeeth Sewnath
Deputy Managing Director
1 Awarded 14.03.24. Award details available on request.
