The Navigator – Anchor’s Strategy and Asset Allocation, 4Q22

The Navigator – Anchor’s Strategy and Asset Allocation, 4Q22

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 season has not been easy as doomsayers are bleating, global central banks chase inflation, and economic growth is set to slow down worldwide. It has been a period where all asset classes have felt pain, and investors who were anywhere other than cash have seen losses. However, as assets get cheaper prospective returns improve, and investors need to keep their eye on the horizon.

It feels very uncomfortable to be invested in anything market-related at the moment, and volatility is unnerving. This same discomfort results in assets being mispriced and investors being willing to sell for below fundamental values. Assets are cheap when things are uncomfortable; conversely, when you feel comfortable because of positive recent returns, it probably means that assets are getting overpriced.

There are very fundamentally attractive assets available globally. Consider, for example, non-FAANG (Facebook, Amazon, Apple, Netflix, and Google [Alphabet]) US growth shares trading at a forward 12x P/E, high-quality global treasuries yielding 4%-plus, Absa at a forward 9% dividend yield, and SA government bonds yielding 11% – a full 5% above where we think inflation will be by early next year.

We know assets are now attractively priced, but the fear created by recent losses blurs our future vision. Given the various factors creating the current upheaval, it is impossible to predict when exactly things will calm down, but as we move through the market cycle, we get closer to that point.

Against the backdrop of what has been a dreadful year, we are noticing a sliver of optimism starting to appear amongst the professional markets. Analysts that were the most bearish a year ago are starting to talk about positive returns as markets inevitably bottom, inflation subsides, central banks reach peak rates, and hikes become a thing of the past. The number of optimists is growing, and the number of pessimists is declining.

Looking out a year, we expect that the global economy is through the worst rate hikes and that inflation will be considerably lower (the market is pricing in 3% inflation for the US this time next year). This gives us some confidence that what lies ahead is better than what is in the rearview mirror. We continue to caution that now is not the time for wholesale changes to your portfolios. The risk of such changes resulting in permanent losses is too high. Over time, if you need to adjust your risk tolerances, then a gradual and patient approach towards such changes is warranted.

Although all asset classes have seen losses, some have been more susceptible than others, and we continue to advocate for asset class diversification domestically and abroad. You will note that we see more opportunities in domestic asset classes in the immediate future. However, we continue to advocate for a larger global holding of assets to achieve your long-term investment objectives.

Now is the time for cool heads and uncomfortable patience with markets.

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. 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.

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