Feb 17, 2022
I recently came across an interesting statistic which made me think of a way to challenge those trite New Year’s resolutions we trot out every January. Did you know that, on average, a child smiles 400 times a day, yet an adult only smiles 20 times a day? So, this year, instead of making promises to yourself that you’re unlikely to keep, my challenge to you is simply to smile a bit more every day!
While 2021 was a difficult year on many levels, it is gratifying that the markets gave us a reason to smile. The FTSE/JSE All Share Index return of 29.2% last year was the highest since 2009. However, it masked a lot of underlying volatility, as evidenced in the enormous differential between the Top 40’s best and worst performing stocks. MTN gained a staggering 184%, while Prosus ended the year down 18%.
Global markets, as represented by the MSCI All Country World Index, also performed well at 28.8% in rands, largely in line with our stock market. Much of this performance was driven by the US, along with Europe (excluding the UK), while Asia and emerging markets lagged on growing concerns around China.
Two years ago, given the relatively poor performance of the domestic equity market, the big question on the minds of many people was whether low-equity and high-equity multi-asset funds would be able to deliver on their targets of inflation plus 4% and plus 6% respectively. Given the massive uplift last year, it is pleasing to note that the one- and three-year numbers have comfortably beaten their targets, while there remains a little bit of catching up to do over five years. Most importantly, investors who had stayed the course over the long term are reaping the benefits. The Ninety One Opportunity Fund, for example, has delivered an annualised return of 13% over 20 years, more than 7% ahead of inflation.1
Despite the stellar returns from risk assets last year, preliminary data from Morningstar shows that income and global funds continued to dominate fund flows, albeit at a slowing rate. Over the calendar year, income funds took just over 50% of the total net flows, while global funds attracted approximately 20% of flows. Of the global fund flows, the global equity sector attracted the lion’s share. Interestingly, this investor preference is not too different from our Quality team’s views, as they still believe the best opportunities are to be found in global equities and the domestic bond market. Be sure to read Clyde Rossouw’s article in which he sets out why a structural allocation to quality makes sense, especially as we brace for a more volatile year ahead.
Historical flow data suggests that investors tend to feel more comfortable adopting a more risk-on approach about 18 months after a crisis, with an earlier rotation into the low-equity and high-equity space. Of course, hindsight is a perfect science, but had investors followed historical precedents, they would have greatly benefited.
However, it may not just have been an uncertain market environment that caused investors to be more hesitant; there has also been concern around regulatory interference in retirement schemes. As part of the retirement reform process first initiated in 2012, National Treasury published two new and important discussion papers in December.
The first proposes compulsory preservation through a two-pot system, which would see one third of contributions flow into an ‘access pot’ that may be accessed once a year. The balance would flow into a ‘retirement pot’, which must be fully preserved until retirement and then fully annuitised. The paper also discusses the possibility of providing relief to members who lost income because of the pandemic. The second paper seeks to accelerate the ongoing consolidation of retirement funds, while ensuring that the benefits of consolidation are passed on to members. Most of the proposals put forward by National Treasury are sensible, as they should ultimately improve preservation and coverage, while acknowledging the difficulties that many people have experienced over the last two years.
Before I sign off, our portfolio managers have identified three key risks to consider in the year ahead. Firstly, while there is some optimism that we may be reaching endemic stage, COVID-19 remains a risk factor two years down the line. Secondly, after years of falling interest rates and central bank stimulus, the winds of change are blowing, and money is set to become more expensive. Lastly, uncertainty about the outlook for China is casting a shadow over markets, with property sector weakness and the spread of Omicron undermining growth more materially than expected. Read Jeremy Gardiner’s A-Z of investing, in which he touches on these and other investment themes.
Finally, we are thrilled to have won the coveted Raging Bull Award for South African Manager of the Year for the second year running. Notwithstanding our growing global investment offering and client base, it is especially gratifying that we continue to deliver for our clients in our home in South Africa. With our third decade now behind us, we want to thank you for your partnership and the role you have played in our success.
Ninety One wins
Best Manager of the Year
at the 2022 Raging Bull Awards
We appreciate your support. Stay safe.
Deputy Managing Director
1 Past performance is not a reliable indicator of future results, losses may occur. Source: Morningstar, dates to 31 December 2021. Performance figures above are based on a lump sum investment, NAV based, inclusive of all annual management fees but excluding any initial charges, gross income reinvested (A share class). Fees are not applicable to market indices. Inception date: 28 April 2000. Highest and lowest returns are those achieved during any rolling 12 months since inception: Jul-05: 43.8% and Feb-09: -15.7%.