The Navigator – Anchor’s Strategy and Asset Allocation, 4Q21
The Navigator is Anchor’s quarterly review of the major themes affecting markets and gives an overview of our current Strategy and Asset Allocation. Click here for the full document.
The purpose of The Navigator is to provide our clients with insight into Anchor’s thoughts on various asset classes and our near-term market outlook.
We are living in an uncertain world. Two years ago, very few on the planet knew what a coronavirus was. Today we are all amateur immunologists. Unthinkable change in a very short space of time. The next year heralds another period of change for financial markets as the financial stimulus measures from the past twenty-four months will be withdrawn. The most important aspects of which are that the US Federal Reserve (Fed) will soon start tapering its bond purchases and, possibly, hiking interest rates this time next year. The global hiking cycle has started, and South Africa (SA) is likely to see rates hiked early next year (or possibly even sooner). Inflation remains stubbornly high in developed markets (DMs), while supply chain blockages continue to hamper the global economic recovery.
After a period of strong economic recovery, we expect that the global GDP growth rate will slow to 3% YoY, while that of the US and SA will slow to around 1.5% YoY. A massive economic deceleration that coincides with the withdrawal of stimulus. Markets are also dealing with the fallout from a slowing property market in China, oil prices that will likely remain high for the duration of the European winter, and commodity prices that are sliding lower to reflect the weaker growth environment. With the maelstrom of events that we are contending with there is heightened uncertainty, heightened risk but, more importantly, also heightened opportunity.
Diversification and balance remain core pillars of our investment strategy. The more volatile and uncertain environment makes this even more important. Some asset classes will do better than others, however, it is almost impossible to know which and therefore a steady and safe approach is called for. That being said, we continue to think that this environment will support risk assets and therefore our preferred asset class both domestically and abroad is equities. The expected returns at an index level seem pedestrian, however, we expect strong and divergent price movements for the shares that comprise the index. This gives us opportunity.
We note that the expected volatile period means that holding some dry powder for potential opportunities that might arise makes sense. For those investors entering the market for the first time, taking a phased approach towards establishing your portfolio would be well advised. Investing is a long-term game and, while risk assets still are likely to outperform, we advocate for patience as the market adjusts to this new environment.
The key to successful management of your wealth is an ability to understand the changes to the world in which we live and to adjust (when necessary) your investment portfolios accordingly. As a boutique asset manager, we can navigate these twists and turns of global developments more readily and our team of experienced investment professionals are ideally suited to understand and react to a rapidly changing environment as we pursue exceptional investment outcomes for our clients.
For the full report and our views on each asset class, click here.