Taking Stock Spring 2023

Welcome to Taking Stock Spring 2023

Challenging markets have led to tough times for the investment industry, with negative flows into collective investment schemes. Where is the money going, if not into the unit trust industry?

13 Nov 2023

5 minutes

Sangeeth Sewnath

I recently stepped out of my non-fiction comfort zone to tackle the fabulous debut novel by Bonnie Garmus, Lessons in Chemistry. It’s a bold and smart take on women’s rights, with plenty of eccentricity and hilarity thrown in, but it was an interview with the author at the end of the book that really struck me. She had this to say, “We have a lot of problems to solve. We’re losing our planet; we can’t control our technology; we allow religious paradigms to influence our policy. In China they have a saying, ‘Women hold up half the sky. If it’s falling, ask yourself why.’”

Consider how much more efficiently we could be solving everyday problems if we were utilising the full potential of our population. Sadly, we aren’t, because half the population isn’t offered the same opportunities. At Ninety One, we are intentional about righting this skew, but we recognise that we have a long way to go as a society. Many women lead households and play an increasingly active role in the economy, but they still lag men disproportionately in earnings and savings. This is why we are so committed to our Women and Investing initiative. Developed over the last 3 years, it aims to empower women to take charge of their finances and investments.

We have committed substantial resources to building out this hub, because we believe it’s not something that should only get attention once a year, during women’s month. Investing is a long-term endeavour that needs ongoing commitment. It has also been a privilege to partner with many of our advisor clients in developing thought-provoking content with practical and relevant guidance.

We’re almost through yet another difficult year, with a barrage of new challenges replacing those brought on by Covid. The last quarter to the end of September has been particularly tough. South African equities fell by 3.5%, while global equities, as represented by the MSCI All Country World Index, shed 3.7% in rand. The bond market didn’t provide refuge either, with domestic bonds down 0.3% and global bonds falling 4.5% in rand. Taking a slightly longer-term view, the picture doesn’t really improve. Over the calendar year to the end of September, the only asset class barring cash that provided a real return in rand was global equities, up 22%.

Have we simply returned to an environment where inflation remains sticky and interest rates stay higher for longer?

Against the backdrop of stubbornly high inflation and high interest rates, many market participants are querying whether we’re returning to the ‘old normal’ of monetary policy. US mortgage rates, for example, topped 7.5% for the first time since 2000. Is this heralding something ‘new’ or have we simply returned to an environment where inflation remains sticky and interest rates higher for longer?

We believe the close-to-zero interest rates to which we had become accustomed were the anomaly, and that central banks have pivoted to more conventional monetary policy. With this in mind, we have decided to launch the Ninety One Global Diversified Income Fund (in USD and as a ZAR feeder fund). We don’t launch funds regularly, and we also don’t launch them based solely on demand. When we do come to market, it is only once we have made sure that the fund has investment merit and that it is sustainable in the long term.

Conservative investors can now access the higher income on offer across global fixed income assets through the Ninety One Global Diversified Income Fund. A high-conviction, actively managed global income solution, the fund draws on the success of the local Ninety One Diversified Income Fund and adopts a similar approach to portfolio construction. The local fund has a long-term track record of participating when the South African bond market performs well and protecting investors when the market underperforms cash. By applying this investment philosophy within a global context, our team has designed a fund that enhances global income whilst maintaining defensive characteristics.

US dollar money market assets are at their peak, sitting at $5.25 trillion.

We believe it offers an attractive alternative to global bank deposits and global money market funds and could also be considered for the income portion within an asset allocation portfolio construct. It’s interesting to note that US dollar money market assets are at their peak, sitting at $5.25 trillion, relative to the previous peak during the Global Financial Crisis (GFC) of $4 trillion.

Turning to investment flows, it is clear that challenging markets have also translated into tough times for the investment industry. According to ASISA, industry flows into collective investment schemes for the first half of the year were net negative.1 This has only happened three times previously – during the pandemic in 2020, the GFC in 2008 and the dot-com crash in 2002.

The big question is where the money is going, if not into the unit trust industry. Historically, household bank deposits – currently sitting at a record R1.7 trillion – were a big beneficiary of flows, but they haven’t grown materially over this period.

Unsurprisingly, persistent load-shedding has meant that households and corporates have directed investment towards alternative energy, including inverters, solar panels and lithium batteries. A report by Montmasson-Clair estimates that close to R50 billion has been invested in SA in the first 6 months of the year in alternative energy.

Secondly, the cost of debt has spiralled. The monthly repayment on a house with a mortgage of R2 million has spiked from approximately R18 000 to R24 000. This equates to an increase of roughly 33% in the cost of debt, which has meant that people’s disposable and investable money has reduced substantially.

Finally, with high interest rates and attractive outcomes from fixed income investments, guaranteed annuities and structured products have grown in popularity.

We still believe there are significant rewards for patient investors.

Notwithstanding the headwinds, we still believe there are significant rewards for patient investors. Be sure to read Clyde Rossouw’s article in which he shares his views on global valuations and where to find pockets of opportunity. Our SA fixed income team ponders whether fixed income has turned the corner after a brutal 24 months, while Iain Cunningham, Co-Portfolio Manager of the Ninety One Global Strategic Managed Fund, digs deeper into the Chinese economy and considers whether the weakness is cyclical or structural.

This is the last edition of Taking Stock for 2023. As you reflect on the past year and prepare for the next, I’d like to leave you with another quote from Bonnie Garmus, this one from the novel itself, “Courage is the root of change – and change is what we're chemically designed to do. So when you wake up tomorrow, make this pledge. No more holding yourself back. No more subscribing to others' opinions of what you can and cannot achieve. And no more allowing anyone to pigeonhole you into useless categories ...”

Here's to investing for a world of change with courage! Thank you for your continued support.


Sangeeth Sewnath
Deputy Managing Director


1 Association of Savings and Investment South Africa (ASISA).

Authored by

Sangeeth Sewnath
Managing Director, Americas

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