Introduction - Angles & Perspectives Q2 2023

Introduction

The current investment environment provides ample support for our view that a ‘big unwind’ is in progress. We believe that a fundamental shift is underway in markets, one which is likely to have a deep impact on the returns investors can expect from asset classes in the decade ahead. Unfortunately, many market participants remain oblivious to the changes that are underway. Prevailing narratives still tend to see the post-Global Financial Crisis (GFC) environment characterised by low interest and inflation rates as ‘normal’, as these narratives are often eager to advocate a return to the economic and macro conditions that prevailed before.

However, as Head of Research Kevin Cousins argues in the first article Arthur Burns, William Miller and learning the right lessons from history, a misunderstanding of the nature of inflation during the 1970s and 1980s may be contributing to an incorrect policy response currently. He anticipates that we will see a resurgence of inflation that is not being anticipated by market participants, and which may catch some investors unawares. This is likely to have a material impact on the returns that investors will see, and means that they might not be able to achieve the investment outcomes required to attain their long-term goals.

This begs the question how investors should approach seeking long-term returns when the investment environment is far from ideal and amidst a significant shift. In the second article, Focus on the right factors when navigating a stormy investment environment, Assistant Fund Manager Ané Craig argues that sovereign debt represents a sizable portion of the investable universe for local fixed income investors. Therefore, it should not be surprising that debates about the South African fixed income sector can be considered a reflection on SA as an investment destination as a whole. In this article, Ané uses South African government bonds (which are often seen as a proxy for ‘Investment SA’) as an example of how we navigate stormy investment markets and which factors we prioritise in our thinking when the environment becomes noisy.

Lastly, Fund Manager Shaun le Roux elaborates on why we believe our unique 3M investment approach gives us an edge in navigating the current market environment. In There has seldom been a better time to extend your investing time horizon, Shaun sets out our view in the current environment – namely, that the benefits for patient investors who can stay the course are amplified even more than usual. Part of our research process is to focus on the longer-term capital cycles, as we find these are far more predictable than short-term demand side factors, and this has enabled us to identify companies that we believe will enjoy pricing power due to a supply-constrained environment. We are excited by the opportunities we see ahead, as many of these companies are in sectors of the market that trade at depressed valuations.

In short, we believe the current market offers significant opportunities, and that our portfolios are well positioned to benefit from the environment that lies ahead, provided that investors can be patient and hold the course, despite the inevitable noise that accompanies regime changes in the market.

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