Taking Stock Spring 2021

Welcome to Taking Stock

In a world dominated by alternative truth and fake news, which numbers and facts should we consider from an investment perspective to help shape our views on the future?

Nov 15, 2021

6 minutes

Sangeeth Sewnath
In a world dominated by alternative truth and fake news, which numbers and facts should we consider from an investment perspective to help shape our views on the future?
Would you believe me if I told you that the last part of the 20th century was not the most inventive period in human history?

It seems unlikely, but this is exactly what Vaclav Smil points out in his unconventional but incisive book: “Numbers don’t lie: 71 Things You Need to Know About the World”.

His book inspired me to question much of what I took to be the accepted truth, and I believe it would do the same for anyone who reads it. In a world dominated by alternative truth and fake news, it is more important than ever to look at the numbers and the facts.

With technological disruption being one of the five themes in our Road to 2030 project, in which we articulate possible visions of the future, I was particularly drawn to Smil’s research on this topic. He makes the point that progress comes in fits and starts rather than in a constant stream. We may go through many decades with very little change, and then experience decades of extraordinary change.

Surprisingly, Smil posits that it is not the more recent age of the computer that saw the most remarkable period of miraculous change, but the 1880s, the era of Thomas Edison. It marked the discovery of electricity, internal combustion engines, hydroelectric power, electric elevators, multi-storey skyscrapers, the first electromagnetic wave and the formula for Coca Cola!

He also questions many other areas of development and accepted truths. Why, for example, do we measure progress based on GDP growth, when GDP also rises when we do bad things, like deforestation. Why does the average French person today drink only 40 litres of wine a year, versus 136 litres a hundred years ago? And have you ever considered why sweating helps us become a whole lot smarter?

Smil brilliantly demonstrates how your perspective can shape your views and thus decisions. He reminded me of the recent article by Co-Head of Quality, Clyde Rossouw, in which he reflected on the ten lessons learnt over twenty years. Clyde’s third investment lesson is that you need to spend equal time studying history, economics, psychology and accounting if you want to be an active manager.

So, if the numbers don’t lie, and with the book as my inspiration and our Road to 2030 research as my north star, which numbers and facts should we consider from an investment perspective to help shape our views on the future? These are my top five – what are yours?

1

According to a research paper by Bank of America Global Research,1 over the last 30 years, only 1.5% of companies generated 100% of the net wealth on global stock markets. To my mind, this surely presents a compelling argument in support of active managers. Within the same report, they point out that in 1958, the average company had a lifespan of 61 years; by 2016 that had reduced to 24 years and by 2027 the average company is expected to have a lifespan of only 12 years.

2

The first stock market in the world was created in 1602 in Amsterdam with the aim of selling the shares of the Dutch East India Company. Interestingly enough, it was here where the first investment fund was created in 1774 after the crisis in 1773, reflecting the importance of spreading risk (diversification).

3

Life expectancy has improved dramatically, from 28.5 years in the 19th century, to over 65 years today, and projected to reach 80 years by 2100. This has significant implications for financial advisors.

4

Over the last decade, the FTSE/JSE All Share Index (ALSI) returned 7.8%, while global equity markets delivered 15%; the previous decade saw these numbers almost reversed, with the ALSI returning 15.7%, versus global equity markets delivering 8.8%.2

5

China has lifted 850 million people out of extreme poverty in the last 40 years. This has driven returns across multiple commodities and markets.

Returning to the here and now and recent market events; the ALSI gained a very respectable 23.2% over the 12 months to the end of September. Look out for the article by Hannes van den Berg and Rehana Khan, co-portfolio managers of the Ninety One Equity Fund, as they question whether local is still ‘lekker’ after the recent run. Over five years, SA equities only gave investors 7.8% per annum, so it is understandable that many investors have felt despondent about the prospects for SA equities.

The All Bond Index returned 12.5% over the year, while local listed property recovered by 58.1%, although the five-year return is still underwater at -6.7%. It is interesting to note that the MSCI All Country World Index rose 15.4% over 12 months – equal to its annualised return over the last five years. Our Quality team still believes global equities present the best opportunities to generate returns for clients.

The differential between the best-performing and worst-performing share on the ALSI Top 40 over 12 months is close to a staggering 200%.

These index returns mask a lot of volatility, however. Dig a little deeper, and some interesting numbers emerge. The differential between the best-performing and worst-performing share on the ALSI Top 40 over 12 months is close to a staggering 200%, with MTN rising by 152% and Gold Fields losing 37%.

With COVID restrictions easing somewhat, it has been wonderful to spend a bit more time on the road seeing advisors in person. This has helped us to better understand the key questions you are getting from your clients and resulted in the two-part series by Sales Manager, Paul Hutchinson, in which he addresses the most pressing issues on investors’ minds. We also dig a little deeper into some of these themes in this issue. For example, be sure to read the article by Deirdre Cooper, Co-Head of Thematic Equity and Co-Portfolio Manager of the Ninety One Global Environment Fund, which explores whether you can do both good and earn good returns.

In closing, I hope that you’re equally inspired to think about the change and progress in the world, and hopefully we can take some of the good developments – even if they are from the 19th century! – and bring meaningful change to the world.

I want to sign off with a quote highlighted in our Road to 2030 research, from calligraphy by the fourth century writer Wang Xizhi: “Raising one’s head to view the vastness of the universe; lowering one’s eyes to inspect the intricacies of things.”

Let us interrogate the detail without losing sight of the big picture.

Thank you for your continued support. Stay safe.

Sangeeth Sewnath
Deputy Managing Director

 

1 Thematic Investing, ”To the Moon(shots)! – Future Tech Primer”, by Haim Israel, Head of Global Thematic Investing Research, published 14 September 2021.
2 Source: Ninety One Analytics database, as at 30 September 2021.

Authored by

Sangeeth Sewnath
Deputy Managing Director

Important information

All information provided is product related and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. Collective investment scheme funds are generally medium to long term investments and the manager, Ninety One Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing and scrip lending. The fund may borrow up to 10% of its market value to bridge insufficient liquidity. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Where the fund invests in the units of foreign collective investment schemes, these may levy additional charges which are included in the relevant Total Expense Ratio (TER). A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The ratio does not include transaction costs. The current TER cannot be regarded as an indication of the future TERs. Additional information on the funds may be obtained, free of charge, at www.ninetyone.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. The scheme trustee is FirstRand Bank Limited, RMB, 3 Merchant Place, Ground Floor, Cnr. Fredman and Gwen Streets, Sandton, 2196, tel. (011) 301 6335. The fund is a sub-fund in the Ninety One Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and is approved under the Collective Investment Schemes Control Act. Ninety One SA (Pty) Ltd is a member of the Association for Savings and Investment SA (ASISA).

This document is the copyright of Ninety One and its contents may not be re-used without Ninety One’s prior permission. Ninety One Investment Platform (Pty) Ltd and Ninety One SA (Pty) Ltd are authorised financial services providers.