Markets, SA and Global Turbulence
We are all aware of how difficult current conditions are. Inflation has kicked globally, with the UK now matching its highest in 40 years (meaningful). They aren’t alone. Central banks are working hard to arrest running inflation with the somewhat blunt tool that is increasing interest rates. By all indications these increases will continue. Russia / Ukraine continues, with energy supply undermined, and costs rising. Quite naturally, the markets have reacted in a risk-off fashion, which has impacted returns. It has to be said that we are paying in 2022 for a couple big calls made in 2020 when the world was trying to come to terms with what Covid might do, a financial Covid hangover of sorts. All in all, it isn’t fun nor simple out there.
You’re right, I’m not having fun…
Theory may well be scant consolation for an extended period of volatility, but historically, markets have had tough moments, and sometimes for extended periods of time
Some periods of extended underperformance, known as bear markets, can be present for years. The obvious question this encourages is: If you know tough market conditions are going to present, why don’t we adjust our strategy for a period of time, by coming out of the market / investment while it is negative and then going in when the opportunity is greater?
The answer to this question is simple. It is exceptionally difficult to adequately time markets, consistently. A well-engineered, long-term, patient strategy, has a far higher probability of benefiting investors over the long run than one that chops and changes.
Trying to time markets forces multiple events, when do we sell, when do we buy back in, how often do we do this, how often can we afford to get it wrong. Pure probability wise, it isn’t a sound multi-decade strategy. As illustrated below, missing a handful of the best and worst days can be massively penal to a long-term plan. If you read the table carefully, it shows what missing the worst and best ten days per decade results in. That’s one day a year (1/365). Eish.
SO WHAT DO WE DO ABOUT THIS?
Our job at F&A is to design a strategy that is sustainable over decades. Risk is multi-dimensional. It is further reaching than markets, inflation and exchange rates. Risk to personal strategies includes the above as well as all the soft factors that are harder to measure, health, awareness, discipline, composure, obligations, life-expectancy, strength of balance sheet, managing budgets, to name a few. Our role is to help our clients navigate all of this.
To handle all of the above, which is extensive, we work with the smartest minds in the industry. Employing the best tools and techniques. This isn’t a one-man job, this takes some 300 specialists plus.
In summary, what I am saying is that it is genuinely tough out there. When it gets this tough, I would rather have a diverse and talented suite of specialists at my disposal, than not.
Below is some of the action we are taking to address the changing landscape at your investment strategy level.
Portfolio Reoptimisation & Rebalance
Our specialist associates, PortfolioMetrix, are busy with a portfolio rebalance, which in simple terms aims to take advantage of areas of underperformance, by selling areas that have relatively outperformed. Remember, these are tweaks to setups, not full selling out of / buying in to positions.
You may recall we have worked through several tweaks and rebalances over the past few years, as we came to terms with (especially) Covid and the exceptional swings that presented.
SOUTH AFRICAN SOLUTION (OCTOBER 2022)
This piece is compiled by Brendan de Jongh (SA Head of Research, PortfolioMetrix)
Markets have experienced a sharp pullback this year resulting in asset allocations across portfolios drifting away from their intended values. We believe that it would be appropriate to rebalance portfolios back to their strategic weights. Please click here for more information about the forthcoming changes.
F&A updates & Strategy reviews
We have been exceptionally hard at work, and finally have some positive news about our evolving business. Please look out for this mailer and social media releases in the next week!
We also plan to chat with and / or get together with all our clients before the end of the year to discuss the above portfolio adjustments, possible strategy adjustments and just generally catch up.
For now, please see the below from Brendan
F&A Monthly Update | August 2022
September 2022 Update
This month's piece is compiled by Brendan de Jongh, SA Head of Research - PortfolioMetrix.
LOCAL UPDATE
A difficult month for global markets did not spare South African asset classes, however, both SA property and equity outperformed their global counterparts in rand terms. It was property that felt the brunt of the fall this month with global property the worst performing asset class followed by local property. SA equities were not spared with financials and industrials dragging down the index. Resources held firm, ending the month in positive territory and contributing to relative outperformance. Unsurprisingly, the two best performing asset classes were local cash and global bonds in rand terms.
GLOBAL UPDATE
September was a difficult month for investors closing off what has been a volatile quarter and continuing a year characterised by rising inflation, rising rates and falling asset prices. The Federal Reserve in the US, the Bank of England and the European Central Bank all hiked rates in September in response to stubbornly high inflation. US inflation fell less than hoped, bringing about expectations of more and faster rate rises in the US. In the UK, the effects of Chancellor Kwarteng’s mini budget were anything but mini as a multitude of unfunded tax cuts spooked markets. The announcements caused large gyrations in the pound and in UK bond markets which also extended into global markets. This forced the Bank of England’s hand into urgently intervening as a buyer in gilt markets to protect the UK pension industry, a victim of rapid falls in UK bond prices. Markets struggled to digest all this news, with bond & equity prices falling globally.
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