The Navigator – Anchor’s Strategy and Asset Allocation, 2Q22
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.
It feels like we are emerging from a perfect storm for financial markets. Stimulus-induced inflation is being exacerbated by supply chains that remain clogged up. The trend of globalisation seems to be reversing towards national production again, fuelling inflation toward uncomfortable levels. These events are being compounded by the horrors of Russia’s invasion of Ukraine and the inevitable inflationary impact on food and commodities. Central banks have no choice but to react with sharp reductions in their balance sheets and interest rate hikes, all of which create turmoil and volatility in global markets. 1Q22 has not been easy, and the returns of our investment portfolios have, by and large, been disappointing.
It is at times like these that we should reassess our long-term investment objectives and consider whether we remain on the path toward achieving and exceeding our objectives. Over time, a company that is compounding its earnings growth by 10% p.a. will deliver immense value to its investors. Sometimes the market will love the company (with lofty valuations) and sometimes the market will hate the company. Over time, however, the market will come to reflect the earnings growth that has been achieved. As the market has swung from infatuation to hate, we are seeing some opportunities to access growing companies at attractive prices. Sentiment might push prices lower still before recovering, however, this is certainly a good time to consider gradually topping up exposures to some companies and sectors.
Domestically, it seems that South Africa (SA) is improving, Moody’s has joined other rating agencies in upgrading SA to a stable rating. National Treasury is likely to see R45bn of excess tax collections this fiscal year and the rand is strong as commodity exports support our trade balance. Good fortune is favouring SA with the current commodities boom. Commodities cycles can be protracted and this one might extend for a few years yet, however, commodity cycles do end. We think that the longer this cycle runs, the greater the opportunity to diversify your investments away from SA. You do not want to be the last one invested domestically when the cycle eventually ends. It is still early, and domestic assets remain attractive; therefore, we suggest a gradual plan to externalise your investments and to seek opportunities abroad.
Most importantly, Anchor believes in a balanced approach toward investing and diversification. Everyone’s circumstances are different, although for most being fully invested either domestically or abroad does not make sense. Consider your long-term objectives and construct a sensible portfolio diversified across asset classes and regions that will, in time, get you to your investment objective. In times of great adversity, there is also great opportunity. This is the opportunity to assess your long-term objectives and to ensure that you remain invested with those in mind.
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.