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Quarterly Commentary

2021 Q1 Comments from the Chief Operating Officer

A lot can happen in a year. Twelve months ago, we put the Quarterly Commentary together under Level 5 lockdown. Most of our employees were working from home, non-essential services were shut, and markets around the world were testing lows. Nervous investors were exiting equities in droves. 

Since then, the country has exited the first wave of infections and been through the second wave. The path of the pandemic has remained difficult to predict, as have effects and reactions across the world. Uncertain outcomes extended to the markets, which recovered strongly from their lows in March 2020, and remarkably, the FTSE/JSE All Share Index (ALSI) closed off 2020 up 7%.

trying to time the market seldom produces results

The strong rebound again supported the notion of resisting emotional decisions and, where possible, focusing on a long-term view. Those who stayed invested, or were fortunate enough to have capital to deploy, have been healthily rewarded. From the end of March 2020 to end-March 2021, the ALSI has returned 54% including dividends reinvested. In US dollars, those returns are even greater, at over 80%, as the rand has strengthened from R17.86/US$ to below R15/US$ over this same period. 

Of course, many investors may have needed to liquidate investments to sustain families and businesses, but those who left willingly may have been reminded that trying to time the market seldom produces results. Resisting this is often easier said than done, as buckling in for the ride can take nerves of steel, and, of course, it is easy to recognise what we could have done differently with the benefit of hindsight. 

Time to reflect

An article published in The European Business Review in April 2020 noted that during “normal” life, we are so busy with our routines that we have very little time to stop and think about whether we are doing the right things. Real reflection happens when we are in crisis, with COVID-19 giving us an opportunity to look at various aspects of our lives and make adjustments, if necessary. 

Reflection, when done at an individual level, is a very personal pursuit. For many, it is an informal practice. However, various models have been developed over the years to help us think more intentionally and deeply about an experience, including how we may have responded, what we could and couldn’t control, and what we could have done differently. 

The “Gibbs reflective cycle” provides a useful format. Developed by Professor Graham Gibbs, former director of the Oxford Learning Institute at the University of Oxford, it offers a framework for examining experiences, suggesting six stages: Describe your experience, note your feelings, weigh up the positives and negatives, look closely at the detail, consider what you learnt and could have done differently, and finally, decide what changes you can put in place now that would help you deal with similar situations. This approach can neatly be applied to the financial and investment decisions you have made over the past year, and potentially help you manage difficult situations in the future. 

In the spirit of reflection, this Quarterly Commentary includes some investment lessons in hindsight of the past year, provided by our portfolio managers. 

COVID-19 and investment decision-making

Over the last year, dealing with the impact of COVID-19 has naturally been at the top of board agendas. With remuneration being one of our key engagement points with companies when we discuss governance issues, we have spent a lot of time engaging with remuneration committees on how they have been incentivising, compensating and retaining key talent during this time. In her piece, Vuyo Mroxiso details some of our views. 

Meanwhile, governments desperate to break the recessionary cycle are focusing on infrastructure programmes, with an expected uptick in demand for commodities. This has led to renewed interest in commodity investments. At the same time, these regimes are more focused on a move towards clean energy, with 2020 seeing an acceleration of climate change commitments around the world. If global decarbonisation goals are to be realised, significant new sources of metals will be needed to meet demand. Sean Munsie and Raine Adams explain why they believe Glencore, with a bias towards base metals, is well positioned in a decarbonising world – despite its thermal coal assets. 

Stocks in focus

Large exogenous shocks have a way of changing the prevailing regime in unexpected but enduring ways. It is quite possible that the consequences of the pandemic will produce a very different market regime, with different winners and losers, over the next decade. However, regardless of this possibility, the United States will play an influential role. Matthew Adams and Eric Marais, from our offshore partner, Orbis, discuss the Orbis Global Equity Fund’s current positioning with its underweight to the US market the largest in its history, and why, within this market, they are optimistic about the relative return potential of transportation and logistics company XPO, and the other cyclical shares. 

While XPO may not be a household name among South Africans, Woolworths most certainly is, and most of you will be more than familiar with their fashion, beauty, home and food offering. Woolies is also one of the top 10 holdings in our Equity, Balanced and Stable funds. Jithen Pillay examines the investment case for the business.

the pandemic has reinforced the importance of building well-diversified and resilient investment portfolios, which include adequate offshore exposure

Simplifying offshore investing

Although COVID-19 may have curtailed our offshore travel, it has not dampened our appetite for offshore investment. In fact, the pandemic has reinforced the importance of building well-diversified and resilient investment portfolios, which include adequate offshore exposure. 

Many investors are intimidated by the prospect of investing offshore. While investing directly with a foreign manager can be administratively demanding, investing offshore via a platform streamlines this process and makes accessing different markets and managers easier. In this quarter’s Investing Tutorial, Radhesen Naidoo and Thandi Skade outline how you can invest offshore

With the vaccine roll-out gathering pace across the world, we look forward to an improved year ahead. Thank you for your ongoing trust. Stay safe and well.

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