Where to find appropriate protection?
There has been lots of turmoil in the country in the past few weeks and there might be more to come when Moody’s makes its rating decision. Therefore a stable fund might be the best option for now.
I was sitting in Hyde Park shopping centre on 13 April, enjoying a cappuccino and catching up with a bit of reading. Suddenly we heard loud banging noises coming from somewhere. I looked around and could not see where it was coming from, but I noticed that people around me were also aware of the noise.
Of the 10 or so occupied tables, one lady got up and quickly moved to an area of safety. After a few seconds, there were gunshots and screaming coming from the same area. At this point the remaining patrons and I all got up, grabbed our bags, and headed for safety. More gunshots. Then I noticed something strange – a few people heading towards the area where the gunshots were coming from.
The majority of people were scrambling for safety, but this minority group of people were intensely curious about what was happening. Fortunately, the entire episode ended soon enough, and apart from the now demarcated area, life in the mall continued as normal. We South Africans have a way of bouncing back to our warped sense of normality quite quickly.
This whole episode seemed to mirror SA investors over recent weeks. People were concerned by the sudden recall of the incumbent finance minister from an investor roadshow, but that did not seem enough to concern the majority of people. When the banging noises initially started, a chap at a table near me confidently told his concerned-looking companion that there was construction work happening upstairs. Interestingly, when the gunshots went off, he was in front of her going to find a safe place.
We did not get any calls from clients in the days between Pravin Gordhan being recalled and being fired. We took a number of calls on the morning after he was fired.
A question a number of clients and new investors now have is: where do I find a place of safety for my investments? A number of proverbial shots have been fired since Gordhan’s recall, including the rating downgrades from Fitch and S&P, and the resignation of Treasury director-general Lungisa Fuzile. Shares in the financial sector of the JSE were hammered, the currency moved from around R12.34/$ to around R13.70/$, and bond yields pushed up. There may be more to come as Moody’s is yet to announce its decision in terms of the country’s credit rating, and there is the matter of the ANC elective conference in December.
Consumer and business confidence has been hit quite hard, and in April we saw retail trade and manufacturing data a lot weaker than expected. Worryingly, this data is from before the effects of the currency weakness and the downgrades. So a technical recession looks likely given that GDP growth for the last quarter of 2016 was negative. So what should investors do now; is there a place of safety that offers their funds appropriate protection?
The Allan Gray Stable Fund (AGSF) is a suitable fund for the majority of people concerned by what is happening at the moment. Not only do investors want protection against downside in the short term, they also require protection against inflation over the medium to long term (if the uncertain environment persists for a while longer). To achieve these dual outcomes, investors will need a fund with a broad enough mandate that allows the manager to protect them against downside risk, and against inflation risk. The AGSF has a long track record of doing exactly this.
My initial response to investors was to suggest a low-equity multi-asset class fund so that investors could benefit from low costs as well. However, given the state of flux that we are currently in, our preference is for an active manager with a track record of successfully navigating such market conditions. For those investors that place a premium on cost-saving, the Satrix Balanced Low Equity fund or the Nedgroup Core Guarded Fund are options to consider.
I had a call from a friend the other day. He wanted to know if the time to invest in banks is now. I liken him to the few people that made their way towards the jewellery store when the robbery was in progress.
People were concerned by the sudden recall of the incumbent finance minister from an investor roadshow, but that did not seem enough to concern the majority of people.