Introduction - Angles & Perspectives Q2 2022

Introduction

Global investment markets have been characterised by multiple distortions over the past decade. The longer these distortions persisted for, the more investors were incentivised to commit to strategies that further fuelled them. Such a self-reinforcing cycle could potentially (and counterintuitively) still have continued for some time, had it not been for the disruption sowed by a microscopic virus that pushed the system to its brink, finally necessitating a recalibration.

The world is slowly waking up from a decade of excesses fuelled by easy money and low interest rates. Ask anyone who has ever overindulged, and they will tell you that eventually, you have to pay the price. There are multiple signs that the self-reinforcing cycle has been thoroughly disrupted and that a new equilibrium is being sought. The pending unwind is bound to be both protracted and painful.

We have long argued that we believe the investment environment of the future will be dissimilar to what we have become accustomed to more recently. Old recipes for success are likely to be poorly suited to the new environment, and we continue to caution investors against adopting a formulaic investment approach.

However, the changing environment is also producing some compelling opportunities, provided investors are willing to seize them. These opportunities underscore the need to think differently about the sources of risk and return going forward, and to assess the prospects of companies in a fresh light. Despite the challenging investment environment ahead, we believe we are in the process of seeing some great investment prospects unfolding for patient long-term investors.

In this edition, we position our case in favour of differentiated management, and share insights into how these views translate into the portfolios.

In the first article Capitalising on the ‘big unwind’ – picking stocks that are fit for the future Fund Manager Shaun le Roux argues that the unwinding of market distortions of this magnitude will have a dramatic impact on future market returns. However, there will be beneficiaries of this process and we believe differentiated managers in particular are well positioned to exploit them. We see clear opportunity for multi-year gains from some of the areas we highlight in this edition. He also discusses some of the areas that we can identify as good long-term opportunities for our clients.

Thereafter, Fund Manager Philipp Wörz and CIO Greg Hopkins reflect on the fact that markets are notoriously noisy and can often send contrary signals. They argue investors should guard against being lulled into a false sense of security. Continuing to favour strategies that have worked in the past is likely to come at the expense of future portfolio growth. They highlight the high degree of concentration we have seen in fund positioning and offer compelling arguments why differentiated managers bring important benefits as part of a diversified portfolio.

Finally, Fund Managers Philipp Wörz and Shaun le Roux unpack why we believe that, in order to grow one’s capital in the years ahead, investors have to look through the noise and adopt a long-term perspective. They share how the abundance of opportunities we identify as part of our 3M process informs our fund positioning.

We trust that you will find these articles insightful, and their guidance valuable in these turbulent times.