Corospondent - October 2020
Notes from my inbox - October 2020
“Throughout human history, in any great endeavour requiring the common effort of many nations and men and women everywhere, we have learned – it is only through seriousness of purpose and persistence that we ultimately carry the day. We might liken it to riding a bicycle. You stay upright and move forward so long as you keep up the momentum.” – Ban Ki-moon
The first two quarters of 2020 were so eventful that they necessitated an all-consuming focus on the events of the moment. Thankfully, the past quarter was, at least from an investment perspective, less action-packed. Financial markets mostly continued recovering (albeit at a more muted pace) and the global economy started a fragile recuperation after the sudden stop experienced during the hard lockdowns.
This provides us with the opportunity to focus this edition on what we believe to be the most important wealth creation rule we know: Invest money in the market as quickly as possible and then wait patiently for compound growth to work its magic, while deploying a disciplined and consistent investment strategy.
This is easier said than done. Endurance athletes will know that it can be very hard to keep going when you hit the proverbial wall. But having the insight and fortitude to know that hydrating, drinking Steri Stumpies, the setting of mini-goals and, above all, continuing to move forward – even if it’s at a crawl – will eventually get you across the finish line. Investing is no different. The last 20 years provided many challenging moments when you might have been seriously tempted to divest. If you do stay the course, though, the rewards can be significant.
IN THIS EDITION
In our lead story, we highlight the track records of two Coronation funds that have been in existence for more than two decades. Over time, the Top 20 and Optimum Growth funds have outperformed their benchmarks by 3.6% p.a. and 3.3% p.a., respectively. This may not sound like much, but in both cases it more than doubled the value of an investment in the index over the same period. In the case of Top 20, it turned the local equity market’s not unimpressive 10-bagger over the last 20 years into a 20-bagger. We also include the second instalment of our Personal Investment team’s top wealth-creation tips, which mostly make the point that how you behave is more important than what you know.
Marie Antelme reviews the stark local economic outlook in the context of South Africa’s emerging market peers. While there is no shortage of official economic revival plans, global financial market participants remain sceptical on government’s willingness and ability to implement investment-friendly economic policy and to effect the expenditure cuts required to achieve debt stabilisation. These low expectations are baked into the highest real long-bond yields across the world’s investable government debt markets, as explained in more detail by Nishan Maharaj in his bond outlook.
Low expectations often create the conditions for upside surprises. This is part of what drove exceptional recent returns from the locally listed miners. Good outcomes are often counterintuitive. Few casual observers would associate mining activity with green credentials, but as Nicholas Stein and Nicholas Hops argue here, the world will need a lot of metal to achieve the decarbonisation of the economy. Heading back to global emerging markets, Lisa Haakman takes a look at the Brazilian e-commerce sector and the fall of a Brazilian duopoly that saw attractive investment opportunities emerge.
HOW MUCH DOES THE US ELECTION MATTER?
We are often asked at times of imminent political change what our view on the outcome will be. Many investors are interested in how portfolios are positioned to benefit from the most likely result. This topic is obviously more relevant in the final weeks before the US presidential election. There are, however, two problems with using this approach in setting investment strategy. First, you need to call the outcome correctly. Secondly, you have to accurately predict the market’s response to the outcome. Virtually no-one gave Trump a chance in 2016 and most of the speculation at the time was that if he were to be elected, it would be bad for markets given his maverick approach to policy. It was therefore unsurprising that the US equity market declined as the news of his election broke. Subsequently, however, the market performed strongly, fuelled by Trump’s classic Republican business-friendly policies of tax cuts and deregulation.
As it became clear earlier this year that Biden has a strong lead in the polls (now revised to try and correct the forecasting errors made in the last election), the pundits initially focused on how a Democratic blue wave (winning both the Presidency and the Senate) will be bad for markets because of tax hikes and re-regulation. As the election draws closer, the narrative is shifting to the positive implications of a more normal US Presidency for global stability as well as the potential positive effects of his $2 trillion climate plan. The point? The short-term impact of political outcomes is much less important than the long-term business fundamentals when making investment decisions.
I again thank you for the continued trust that you place in us. You have our commitment to focus unceasingly on looking after your hard-earned capital to the best of our abilities. As always, I invite you to contact us via firstname.lastname@example.org if any aspect of our service to you is unsatisfactory.
Take care out there.