July 2022 Update
F&A Monthly Update | July 2022
After a testing second quarter, July and now August continues to provide good relief to investors, with our local market up 9% and global markets up circa 11% for the period 1 July to 18 Aug. Positive news, and some consolation following a period where both equities and bonds pulled back.
My heart does go out to investors. It hasn’t been a simple journey over the last few years, especially for South Africans, and more specifically for Durbanites! Life, and investing, is never truly risk free. Without risk, we cannot grow, but risk and growth don’t always feel good. In fact, it can sometimes feel pretty rotten! When you take on risk, you take on uncertainty, and this brings with it a range of possible outcomes - both to the upside, and the down. This range irons itself out over time. What remains unclear in that sentence is just how much time that will take . Perspective is hard to have when you’re getting hit in the face. The assumption that humans can participate in a journey of ups and downs, while keeping their focus and discipline on the long-term is a big one. This makes wealth management an interesting dance between probability management, human psychology, and human discipline.
In a perfect world, the odds fall in your favour, and you remain composed and disciplined. The odds falling in your favour make up an important part of your result, but so does composure and discipline. I would argue that many humans harm their long-term wealth prospects more than they help - through struggles with composure, but more importantly, discipline. It is a bitter pill to swallow, but someone who consistently lives above their means will falter financially. And that has nothing to do with investment performance, or even composure regarding that. Poorly disciplined individuals end up having to take on more risk! Surely the cornerstone of long-term wealth management is discipline, with arguably portfolio performance making up the various stones that form the whole bridge. Perhaps composure is the ability to cross that bridge in all seasons and conditions. Not the sexiest analogy, but appropriate. Everyone wants a silver bullet when really, the answer is a very simple, but hard one.
Put simply:
Discipline will afford you more time. And composure, over time (and with the best teams in place), will buy you performance.
July 2022 Update
This month's piece is compiled by Liam Dawson, Investment Analyst - PortfolioMetrix.
LOCAL UPDATE
In July risk assets outperformed, but the best performers were SA Property, Global Property and Global Equity. These three asset classes have also been the worst performers year-to-date; a real story of how volatile markets have been. A reversal in the Resources super sector also served as a drag on SA equity, as commodity prices continued to fall off their recent peaks. Global Bonds continued to provide a degree of stability to our rand-based portfolios which face an uncertain outlook despite easing inflation expectations and the slightly less hawkish central bankers that go with that.
GLOBAL UPDATE
July once again saw high inflationary prints across developed markets, this in turn sustained the hawkish approach adopted by the central banks in these regions. Despite this the market view developed that inflation may be easing and subsequently central banks (especially the Federal Reserve) do not need to be as aggressive as previously thought. Lower inflation expectations were however met with lower growth expectations too.
The improving risk sentiment off low levels drove positive returns for Equities and Listed Property and helped to compress credit spreads as High Yield and Corporate debt outperformed. Commodities and Emerging Markets lagged over the month.