Introduction - Angles & Perspectives Q1 2022

Introduction

Our differentiated perspective allows us to look beyond the prevailing narratives
In the past, we have elaborated on how market narratives often become an unquestioned underpin for investors’ choices. The antidote, we have long argued, lies in independent thinking, thorough research, and open and honest debate. Sounds simple, doesn’t it? The challenge, however, is that narratives can become entrenched and normalised to such an extent that it can be very difficult to stand against ‘common wisdom’. It often takes a sea change, like the one we are currently seeing, for investors to rethink their long-held beliefs. Even when they do, however, they are slow to appreciate how fundamental a recalibration may be required, or how deep the impact on portfolios may run.

A key culprit is the indices many managers track and align to – either overtly or more implicitly. Over the past decade, conditions have continued to favour the same set of market winners year after year. As one example, this dynamic has seen the weight of five of the best-loved IT giants (Amazon, Apple, Meta (Facebook), Alphabet (Google) and Microsoft) in the S&P 500 Index grow from 5% in 2009 to a recent peak of 25%. Even those who take an ‘underweight’ position relative to the index, are still inherently taking their stellar rise over the past few years ‘on board’ as a fait accompli. Already, however, some of these big names have started posting disappointing results, as market conditions change – and investors have to ask if their prospects are as bright as they once were, given the elevated valuations investors are still largely buying into. In our view, the initial price paid for an investment remains one of the largest determinants of the long-term outcomes investors can expect to realise.

In this edition, we therefore unpack the implications of the fundamental shifts we see afoot, and explore how our 3M philosophy, underpinned by a belief in the value of differentiated thinking, uniquely positions us to find growth opportunities in an environment that looks very different to that of the past.

In the first article, Head of Research Kevin Cousins explores some of the currently widely held beliefs and weighs the arguments in favour of a contrary view. We believe there is compelling evidence that the low growth, low interest rate environment following the Global Financial Crisis (GFC) was an anomaly, rather than the new normal. The implications for portfolio constructors are profound.

In the second article, Fund Manager Shaun le Roux considers how the prevailing views have influenced portfolio positioning for most managers. He argues that global positioning reflects strongly entrenched perceptions around riskiness and expected returns from various asset classes. We argue that the future is likely to look very different to the recent past, and investors who have fallen into the trap of extrapolating the experience of the past decade into the future, should consider amending their portfolios to reflect a material change in future sources of risk and return.

In the final article, Head of Equities Justin Floor and Fund Manager Dirk Jooste unpack how we have implemented our differentiated views in our portfolios, and how we believe this positions us to deliver future growth. They argue that our 3M investment philosophy leads us to hunt for under-appreciated quality at a favourable price, and that the current market environment is offering an above-average number of opportunities, many of which are unlikely to be found in more mainstream portfolios.

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