The Navigator – Anchor’s Strategy and Asset Allocation, 1Q22
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.
This introduction is being written on the 667th day of South Africa’s (SA) National State of Disaster on COVID-19. What started as a short-term mechanism to reduce stress on hospitals has become a long-term event that will permanently change how we live. As we start 2022, hopes are high that we are moving into the final phase of the pandemic, where we learn to live with the virus and can return to a more normal life.
The themes of 2021 are equally carrying into the new year. Supply chain blockages, where people are either too sick to work or are on lockdown, continue to hamper the supply of goods. Against this backdrop, individuals have shifted their spending towards goods, while services such as travel remain difficult under pandemic conditions. The increased demand for goods at the time of a decline in supply is the perfect recipe for inflation. This was the dominant theme in 2021 and has carried on into 2022.
Central banks are responding, the US Federal Reserve (Fed) should stop printing money by March, while most central banks (including our own) are expected to hike interest rates a couple of times over the coming months. Inflation and rising interest rates are going to be the theme for the first half of this year at least. The headwind from rising rates makes for more volatile markets (giving both entry and exit opportunities from time to time). The debate is about how drastically the central banks need to respond. Markets are delicately balancing the optimism from higher economic growth expectations with the pessimism from higher interest rates.
We expect that the next six- to twelve months will bring clarity as the goalposts for central bank action and economic growth become clearer. Asset allocation is particularly difficult in this environment and active management is essential as adjustments will be necessary once we have a clearer view of which way the goalposts are moving. The fortunes of an asset class that might appear unattractive today, can change rapidly as we gain clarity on likely developments … this is the season of active management.
In this context, Anchor continues to believe in diversification between asset classes. We have specialists in the various asset classes, who are actively focused on comparing the risks and rewards of their respective asset classes to suggest subtle portfolio shifts. Within each asset class, there are always opportunities to be had, particularly in the more volatile environment. An asset class might appear uninteresting on the surface, however, underlying that superficial index level view are individual companies and investments. We remain focused on digging around in those possible investments to find the couple of compelling opportunities that inevitably present themselves.
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.