Notes from my inbox - January 2019
THE FOURTH QUARTER brought a dismal end to a jarring year for investors. Despite the global economy remaining in reasonable health, fear decisively trumped optimism across markets, leading to record outflows from active global equity funds in December. The result was the worst year since 2008, with all major equity markets around the globe losing money in dollar terms. The MSCI All Country World Index ended 9.4% down and the FTSE/ JSE All Share Index declined by 21% in dollar terms and 8.5% in rand terms, while the shareholder-weighted index declined by 12% in rand. As your fund manager, we did not enhance the poor outcomes produced by the markets, with most of our flagship funds ending the year somewhat behind benchmark. While our long-term track record remains intact, the performance produced by our equity and multi-asset funds over the short to medium term have not met our own expectations.
During the tough times, our job is to remain resolutely focused on allocating the capital you have entrusted to our oversight to the best of our ability. This requires our investment team to find the right balance between remaining disciplined and committed in positions where market prices have declined but the long-term investment theses remain intact, and the humility and pragmatism to exit where we conclude that we have made a mistake. We share more insight into the current investment cycle in CIO Karl Leinberger’s reflections on a tough year.
The better news is that long-term return prospects have improved. Valuations take a back seat at times that emotions drive markets, but in every single prior cycle, the fundamentals have eventually reasserted their influence on asset prices. We know from your feedback that the average return expectation among our clients with long-term horizons is 12% per annum. While our largest fund, Coronation Balanced Plus, returned only 4.9% per annum over the past five years, it delivered a return in excess of 12% per annum in three out of every four rolling five-year periods since its launch nearly 23 years ago (its 76% success rate compares to the 57% achieved by its peer group average over the same period). Achieving this return target over the next five years is much more probable given current valuation levels, which is the most attractive that we have seen in a decade.
In this edition, we cover some of the themes that will shape outcomes in the year ahead. Economist Marie Antelme sets out our thoughts on the prospects for the global and local economies, highlighting that despite the inevitable risks, there is some macro support for the view that assets, including in emerging markets such as South Africa, may have become oversold in 2018. With an erratic US president, an increasingly chaotic Brexit and a local election coming up, political risk remains one of the big concerns.
Portfolio manager Suhail Suleman reports on political developments in Latin America, where two rather different leaders were recently elected in Mexico and Brazil, the region’s two biggest economies. We also show how political uncertainty can create opportunity in Nic Stein’s article on Quilter, which is well positioned to benefit from structural changes in the UK’s pension and savings market while being priced undemandingly because of Brexit fears.
Another component of our role as stewards of your capital is to provide leadership to the companies we invest in with regards to governance, environmental and social issues. Portfolio manager Pallavi Ambekar gives a review of our approach to this increasingly scrutinised area and gives some examples of successful past interventions that helped to ensure that shareholders’ agents, in the form of boards of directors, management teams and auditors, act in the best interests of their stakeholders. In our personal financial planning feature, we explain why 5, 15 and 75 are the numbers that drive retirement.
As always, I invite you to get in touch with us via email@example.com if you have any concerns about your investment or any aspect of our service to you.
Here’s to a more constructive 2019.