Rob Formby
Quarterly Commentary

2021 Q2 Comments from the Chief Operating Officer

I write this during a devastating week for South Africa, with looting and riots in KZN and Gauteng destroying businesses and livelihoods. The rule of law and respect for property and property rights are fundamentally important for our country to function, and these have been sorely tested. The riots and needless destruction of property have tragically already cost lives and will increase suffering in the future. Our thoughts are with all of our clients, advisers and fellow South Africans who live in the regions and have been affected by this unrest.

As is so often the case, South Africans have shown hope and solidarity, with communities coming together to help re-establish control. While the immediate situation has calmed, the damage to infrastructure and supply chains has been extensive and the following days and weeks are going to be testing.

South Africans have shown hope and solidarity

Despite the events in KZN and Gauteng looming large, it is also worth remembering that July is Savings Month in South Africa. In these pandemic times, many people have been financially impacted by the lockdowns, and perhaps this is an opportune time to start talking about managing finances, savings and investments with our families. These are often not easy discussions to have, but with money conversations still taboo in many circles, getting comfortable with this subject at home is an important starting point. In this quarter’s Investing Tutorial, client-facing people in our business offer a range of personal finance suggestions to share with those in your inner circle. Adding to that, the following are three tips of my own, which I package in different ways for my family members:

Money isn’t everything, but it is an enabler; it gives you options: Having an investment can ultimately empower you to do the things that matter to you and prevent you from being dependent on others. Starting to invest, and then carefully managing your investment, will allow your money to grow. While it may not be a priority to account for future wants, needs or opportunities, your “future you” will thank you.

Avoid dipping into your investments: Make your investments more difficult to access; this will lessen the temptation to use them to fund spending. If you do need to access an investment, make sure it is for an important reason and, if possible, use only the income, not the capital.

Time is valuable – make it count: As your investment begins to earn returns, the base from which it will earn future returns grows exponentially; this is referred to as compound growth. The longer you leave your investment to grow, the more time it has to benefit from this incredible phenomenon. It therefore pays off to start investing as soon as you can and adopt a long-term approach.

It … pays off to start investing as soon as you can and adopt a long-term approach

Where to from here for inflation?

One of the reasons we want our investments to grow is to account for inflation, which erodes the real value of our money. Although we experienced very low inflation last year – 2%, compared to the Reserve Bank’s 3-6% target as economic activity plummeted due to COVID-19 restrictions – as activity begins to pick up globally, demand is rapidly rising, taking prices with it. The question is, is inflation going to be a feature for the foreseeable future? Sandy McGregor interrogates this topical question.

While we are bottom-up investors who make investment decisions based on fundamental research, rather than top-down investors, who focus on macroeconomic factors, we must still be cognisant of the environment in which we invest. Understanding the inflationary backdrop is important, particularly when it comes to managing fixed interest. However, this is only one of several factors we consider when managing our Bond Fund, Money Market Fund and the fixed-income components of our asset allocation funds. Thalia Petousis elaborates on our approach.

Investment opportunities

Several high-profile delistings from the JSE have resulted in questions about whether South Africa is still an attractive investment destination. Although the number of delistings has indeed exceeded that of new listings since 2016, the market capitalisation of new listings has exceeded that of delistings every year since as far back as 2008, and the JSE remains one of the world’s 20 largest exchanges by market capitalisation. Nadia van der Merwe and Stephan Bernard examine the delistings trend and delve into the local opportunity set.

On the subject of opportunities, you may find it interesting that, despite the fact that they have a much larger pool of shares to pick from than we do, Naspers features in the top 10 equity holdings of our offshore partner, Orbis. This is testament to the compelling investment opportunity the company presents, even within the broader context. The investment is also a vivid illustration of Orbis’ global research capability, the collaboration between our investment teams, and the benefit of adopting a global viewpoint to fully understand a company. Our colleagues at Orbis, Stefan Magnusson, from the Emerging Markets Investment team, and Edward Blain, from the Europe Investment team, provide their perspective on the company.

Making an impact

The Allan Gray Orbis Foundation is working exceptionally hard to ensure it achieves its intended impact, despite the immense challenges COVID-19 has presented. They have sharpened their programme delivery to be as effective as possible – and are achieving commendable results. Yogavelli Nambiar explains their approach and provides us with an update.

Thank you for your continued support during these uncertain times. Please stay safe and healthy.

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