by | Dec 1, 2022

Addressing investors’ burning questions amid tough market conditions and reflecting on industry developments.

As I write this, yet more investment records have been shattered. Unfortunately, they’re not of the good kind.

This year alone, global equity markets are down by $30 trillion, more than the $28 trillion decline during the global financial crisis of 2008. During times like these the temptation to tinker with your investment plan – just for the sake of doing something – is often overwhelming. But it’s important not to give into that temptation. Rather find a distraction to take your mind off the headlines.

I found that distraction in a book by Bradley Hope and Justin Scheck titled “Blood and Oil: Mohammed bin Salman’s Ruthless Quest for Global Power”. It tracks the astonishing rise to power of Saudi Arabia’s Crown Prince Mohammed bin Salman, and as author Oliver Bullough says in his review of the book, “If you’ve ever wondered what would happen if limitless money met limitless power, wonder no longer, it’s all here…”

The Saudis have had to deal with all the volatility of global events as well as an authoritarian regime. On the face of it, our market extremes are certainly preferable to being on the receiving end of some of the excesses described in the book. If this is truly their lived reality, it begs the question whether there could be any ‘return to normal’ in that society, or if the abnormal events described are in fact their new normal!

2022 has been an unprecedented year, with almost everything in the red.

Where markets are concerned, 2022 has been an unprecedented year, with almost everything in the red. Global equities were down 26% in US dollars to the end of September, while SA equities shed more than 10% in rands. Over the same period, global bonds lost 21% in US dollars, while SA bonds performed somewhat better, but still declined by just over 1% in rands.

Over the quarter, apart from cash, the only positive performer amongst the large asset classes was the All Bond Index, which just snuck through with a positive return. However, this masked massive volatility, given that the index declined by 2% over September.

One issue my investment colleagues generally agree on is that despite all the bad news, this is in fact a relatively ‘normal’ economic cycle. But it’s tough out there, and we’re getting three key questions from our clients.

  1. Firstly, what should they do with their existing investments? As Clyde Rossouw points out, financial assets have already adjusted materially to central banks withdrawing liquidity, so it is too late to disinvest now; rather stay invested.
  2. Secondly, what do they do with new money? While our portfolio managers are still fairly cautious, as Clyde points out, there are attractive entry points emerging for those who have a long-term investment horizon.

    Be careful, however, of ‘lazy money’ and staying parked in cash for too long. There is no denying that it has also been a tough environment for fixed income. As mentioned earlier, the All Bond Index lost 2% over the month of September, which meant that almost 80% of the funds in the income sector posted a negative return over the month.

  3. Finally, investors want to know whether they should go offshore at these levels. We conducted an interesting study which showed that people believe the rand-dollar exchange rate to play a far bigger role in investment outcomes than it really does, especially over the longer term. Our study showed that irrespective of whether the rand was weak or strong relative to the previous 12 months (which largely drives investors’ expectations of the future), the return experience post their investment offshore was very similar in both environments. A more important consideration therefore is where you invest offshore and the manager you choose rather than the exchange rate at which you are externalising your investment. Our Quality investment team still believes that offshore equities constitute the ‘best ideas’ within our multi-asset portfolios, and while the rand has depreciated by more than 19% against the US dollar year to date, it has been one of the strongest emerging market currencies.

We are about the long term. We are committed to creating an intergenerational business, so we don’t make decisions that would put the sustainability of our business or our service to you at risk over the short term. I hope that you are thinking similarly about your business as we look forward to a long and meaningful journey together.

Studies have shown that financial advice can add a potential 3% per annum of net returns.

We recognise that client conversations can be very difficult when the environment is so challenging. Studies have shown that financial advice can add a potential 3% per annum of net returns, and about half of this is derived solely from keeping clients committed to their original plan. At times like this, clients should stay invested, especially as a lot of the pain has already been taken. It’s not easy, but we are here to help. Please let us know if you need assistance with commentary that could help, or with client engagements.

We are always here to support you.