Introduction - Angles & Perspectives Q4 2021

Introduction

The current environment offers plentiful opportunities for our 3M process
Investors often resort to mental shortcuts and rules of thumb to speed up decision-making, and tend to extrapolate the recent environment into the future. This encourages a binary outlook (value vs growth, e-commerce vs bricks and mortar) and, as investors pile into what has worked in the past, markets can be driven to extremes. Taking a view that is different from the consensus outlook can be challenging and may seem foolhardy, especially if anomalous market behaviour persists longer than expected. However, this behaviour also creates opportunities for patient investors who are willing to look beyond such oversimplifications and question prevailing narratives. We would also argue that this approach is essential to assuring long-term outperformance.

Investment managers need to perform a fine balancing act in constructing portfolios – ensuring that differentiated thinking adds value to investors, rather than just being contrarian for the sake of being different. Our long-term focused 3M approach (moat, management and margin of safety) allows us to exploit some of the prevailing market narratives by investing in out-of-favour areas of the market that are often shunned by others. At the same time, our process helps to ensure we focus on identifying true value that is simply underappreciated by the market. By deviating from the commonly held wisdom in a disciplined manner when our in-depth research supports our views, we are able to invest in above-average quality companies at below-average prices.

It is true that we can occasionally invest in companies early, especially when market generalisations persist for extended periods and become entrenched as fact. However, we firmly believe that this approach enables us to deliver the best long-term returns for our clients through various market cycles. After all, although emotion and sentiment often dominate in the short term, markets are moved by fundamentals in the long run.

In the first article, Only the start of an anticipated outperformance cycle from our differentiated approach, John Gilchrist argues that fund managers need to approach the world differently from competitors to deliver outperformance in the highly competitive world of investing – they need to both think and act in a differentiated manner. Behavioural biases and business pressures make truly independent thinking and positioning in portfolios extremely rare. However, we believe our 3M process helps us take advantage of market opportunities. Despite the recent rerating we have seen in many of our funds, we think there is still a lot of potential in our funds. John details why we are excited by the prospects for our funds.

Fund Manager Justin Floor explores the flurry of corporate activity and buyout offers we have seen on the local market recently. Barbarians at the Gate: JSE mid-caps on the shopping list argues that this activity can be seen as a validation of our views. However, we have a duty to realise fair value for our clients and, given the prevailing market sentiment and low prices of South African assets in general, we face considerable risk that our clients will sell too early and at too low a price, losing out on what can be a multi-year period of precious, life-changing returns.

In the final article, Global equities – Beware the rearview mirror, Fund Manager Philipp Wörz unpacks whether there are still opportunities to be found in the global market. He argues that, at a time when fundamentals should start to increasingly matter again, the future of our holdings looks bright.

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.