Introduction - Angles & Perspectives Q3 2022

Introduction

Markets have seen some extremes for the year to date, and there is no sign that the current market volatility will abate soon. While we anticipated that global imbalances would have to unwind at some point in time, there can be little doubt that the current upheaval is causing much discomfort for investors in the short term.

The unwinding of imbalances built since the Global Financial Crisis (GFC) was never likely to transpire smoothly, but volatility has been exacerbated further by stubborn and persistent inflation and geopolitical uncertainty. Intersecting and overlapping crises seem to have become something of a new normal investors must become used to. The challenge will be to construct robust portfolios that continue to generate wealth despite such volatile conditions. Inflation is likely to remain a feature of the world we see ahead for some time. To take some liberties with the Lewis Carroll quote below, investors will have run ‘at least twice as fast’ to ensure their portfolios continue to grow in real terms.

We have a strong view that there are always opportunities in the market, provided that you look beyond the short-term noise and prevailing narratives. By relying on quality research and taking a differentiated approach, our proven 3M investment philosophy enables us to uncover opportunities that will be well suited to an investment environment that we anticipate will look much different to that of the past decade. However, those who do not adapt their investment strategies to the new realities we see ahead, may find their ability to grow wealth successfully into the future severely compromised. In seeking to successfully navigate the challenges ahead, we believe investors would be well served to partner with differentiated thinkers.

In this edition, we evaluate the impact of unwinding global imbalances on our assessment of risk, and share our thoughts on finding opportunities in an environment that looks appreciably different to that of the past.

In the first article The new emerging markets? Head of Research Kevin Cousins argues that investors need to be careful of backward-looking risk measures in an environment of long-cycle inflection, and avoid ‘long duration’ assets. He highlights that under-owned old economy and emerging market assets are well suited to today’s economic fundamentals with low ‘true risk’ despite historically higher price volatility.

Assistant Fund Manager Ané Craig then argues in The safer bet amongst South African fixed income assets that the importance of price risk should not be underestimated when searching for a safer bet amongst South African fixed income assets. She argues that investors should be careful when evaluating these opportunities in the fixed income market, as focusing on only one consideration, such as volatility, may lead to misleading conclusions.

Lastly, Fund Manager Lyle Sankar provides insights into how we navigate the environment, in Navigating the inflation inflection point: How the PSG Diversified Income Fund rises to the challenge. He unpacks our strategy in detail and explains how the fund is positioned to help clients achieve their investment objectives.

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

PSG Asset Management is a wholly owned subsidiary of PSG Konsult Group.