Corospondent - April 2019
Notes from my inbox - April 2019
“… human beings have a strong dramatic instinct toward binary thinking, a basic urge to divide things into two distinct groups, with nothing but an empty gap in between. We love to dichotomize. Good versus bad. Heroes versus villains. My country versus the rest. Dividing the world into two distinct sides is simple and intuitive, and also dramatic because it implies conflict, and we do it without thinking, all the time.”
– Hans Rosling, Factfulness: Ten Reasons We're Wrong About the World – and Why Things Are Better Than You Think
Homo sapiens’ favourite way to make sense of the world is through a compelling narrative. For the plot to make sense, there needs to be conflict followed by resolution. If the storyline becomes too convoluted, we tend to lose interest. While we are hardwired to interpret the world in this way, it is often not the most sensible approach to truly understanding what is happening around us. Hans Rosling reminded us in my favourite recent read that we should be careful not to oversimplify the world in our search for the explanatory tale.
If you do insist on simplifying events, you can summarise the investor experience during the first quarter of 2019 in two main narratives, which, when taken at face value, seem contradictory: investment performance improved dramatically, while much of the economic news deteriorated. Time will tell how the rest of the 2019 plot plays out. Our aim in this issue of Corospondent is to fill in some of the gaps so that you can have a more nuanced perspective on how the story will unfold from here.
The good news is that markets around the world staged a strong recovery after a dismal 2018, with both our local and global equity funds delivering double digit returns at the start of 2019. The key macro factor contributing to this outcome was central bankers’ new-found dovish sentiment in response to signs of a slowdown in global economic growth. In several cases we have also seen the market taking a more benign view on the idiosyncratic factors impacting some of the key holdings in our portfolios (such as the platinum miners, British American Tobacco, MTN and Chinese internet businesses such as 58.com, JD.com, and Tencent / Naspers).
The bad news is that the economic outlook for South Africa remains very weak. In the near term, Eskom is the darkest cloud on the horizon. Mauro Longano sets out our power utility’s dire condition, while Neville Chester deals with the likely impact on sentiment and business activity of what looks like a prolonged period of inadequate power supply that lies ahead. Marie Antelme points out that the timing of the energy crisis could not be worse, given that, during 2018, already depressed economic activity led to the slowest growth in compensation of the democratic era. While it seems clear that a combination of deregulation and competition will eventually alleviate the energy supply problems, it remains to be seen how much more pain will have to be taken before we arrive at this inevitable destination.
Nicholas Hops deals with another risk posed by widely-accepted narratives in his piece on the dangers of headline investing. He illustrates how conventional wisdom can lead you astray when investing, using examples from the global paper, primary energy and vehicle drivetrain industries.
Finally, we celebrated the 20th anniversary of the Coronation Optimum Growth Fund in March. This fund was a pioneer in the worldwide flexible fund category when it launched in 1999. As the name implies, it is an unconstrained fund that truly celebrates active investing, as it can invest in any listed asset from anywhere in the world. Its broad mandate benefits from the breadth and depth of our 54 investment professionals covering equities, bonds and property across the domestic, frontier, emerging and developed markets. The fund returned 14.3% per annum over the past two decades, which turned an initial R100 000 investment into nearly R1.4 million today, an increase in purchasing power of 4.25 times over this period.
As always, I invite you to get in touch with us if you want more information about your investment or if you think that there is something we should do better.