We live in interesting times. Change is the only constant. Shaun le Roux from PSG Asset Management says “Investors should, …, be very careful not to panic and take steps that could be detrimental to their portfolios in the long run. The political situation is very fluid and if the current political direction is reversed in the months ahead, as some believe it could be, we could be closer to an excellent buying opportunity than the start of the descent”. Shaun mentions a few pointers with which we agree:
- Stay calm. Carefully assess risks – when facts change, be prepared to change your mind.
- Ensure portfolios are diversified across currencies, geographies and industries.
- Think long-term and do not forecast – we have witnessed a string of inherently unpredictable political events over the past year-and-a-half (Brexit, Trump and Zuma).
- Value cash – cash can be very valuable in times of panic.
- Buy with a margin of safety- owning assets that we are confident are trading at a discount to an intrinsic value over the long term helps to protect against a permanent loss of capital.
- Be greedy when others are fearful – keeping a cool head and buying when others are fearful or panicking has provided the best opportunity to generate the long-term returns We expect the current situation to provide such opportunities. (PSG Angle – 4 April 2017) Nedbank’s best of breed fund managers (Foord, Abax, Truffle, Electus, etc) said: “In Summary, the immediately observed direct impact of this change has been:
- ‘A weaker Rand, leading to strength in offshore assets and locally listed companies with earnings predominantly produced in non-ZAR currencies, (rand hedges)’ – We have a lot invested directly offshore and the majority of our local portfolios are in rand hedge shares.
- ‘Higher bond yields, negatively affecting the capital value of any nominal bonds held’ – We hold no bonds where we have discretion.
- ‘Locally focused property companies are less attractive on the back of higher yields and a weaker economy’ – Our exposure to local property is minimal.
- ‘Offshore property companies listed locally to benefit from non-ZAR rental income unaffected by local politics’ – We have sizeable holdings in Intu and Tradehold.
- ‘SA banks and financial services will suffer with the consumer’ – We have sold bank shares where we have discretion.
- ‘Direct commodity prices, should not be affected by local events, driven predominantly by global demand” – Our portfolios have substantial exposure to resources (Anglo’s, Billiton, etc.)
“Global events in the last year alone have prepared capital markets for variability, … Brexit, Donald Trump … Marine
Le Pen…all testing our powers of prediction. This cabinet reshuffle serves up a healthy dollop of uncertainty and brings into question any assumptions you may have baked into valuations. The changes to the Treasury carry the most risk to investors, as unfettered policy decisions have the potential to bring a weaker Rand, higher bond yields, lower ratings for domestically focused stocks and higher inflation. However, the glass half full view is that such uncertainty, breeds opportunity …” (Nedgroup Investments – 4 April 2017)
Wealth Management maintains a disciplined approach to ensure money is managed consistently, without emotion and with a long-term view. We are confident that our client portfolios are well positioned (rand hedge stocks, offshore property and no bonds or local property) to protect against the impact of these changes.