Growing wealth after the pandemic
• Managers must revisit clients’ financial plans, writes Pedro van Gaalen
During the March 2020 market selloff, wealth management strategies shifted from growth to capital preservation.
“Volatility characterised markets in the first half of 2020, but markets subsequently stabilised and largely recovered by the end of the year,” explains Tamryn Lamb, head of retail distribution at Allan Gray.
“At the height of the pandemic, there were signs that investors shunned higher-risk products, instead favouring cash and lower-risk options. This behaviour proved costly if investors did not re-enter the market to time the subsequent recovery, which, as we know, is hard to do.”
Prudent portfolio tilts that retained exposure to select equities benefited from the rebound, with many clients enjoying market-beating returns after pivoting portfolio allocations towards thematic trends around technology and health care.
Wealth managers must now navigate a complex landscape to continue growing client portfolios amid sustained volatility due to local political factors, such as the recent civil unrest, coupled with rand volatility and global uncertainty about new virus variants.
Despite the risks, SA’s high net worth individuals (HNWI) have largely stayed the course and remained invested throughout the volatility.
“We expected more outflows in the wealth sector due to the unrest and ailing economy, particularly with discretionary investments, but we remain in a net positive position,” says Chris Potgieter, MD of Old Mutual Wealth Private Client Securities.
While many financially distressed retail investors divested to address financial shortfalls, Potgieter believes HNWIs were typically insulated from the economic hardships caused by the job losses and lost income experienced by the broader market. “Instead, we have typically witnessed a shift between investment strategies and products, particularly a shift from domestic to offshore exposure,” says Potgieter.
As the macroeconomic environment and consumer circumstances change, Standard Bank’s Head of Wealth and Investment South Africa Sanah Gumede says wealth managers must revisit their clients’ financial plans.
“The pandemic affected people in different ways, from income constraints to emigration considerations. Wealth managers must ensure their investment strategy takes these changes into account.”
According to Gumede, wealth managers should conduct a comprehensive suitability analysis to articulate the client’s objectives and update their strategy accordingly to achieve the defined investment goals.
“It is also important to consider a client’s reaction to the Covid-19 market correction when performing this analysis.”
With uncertainty set to characterise global markets going forward, wealth managers must prepare clients for volatility over the short and medium terms, says Dan Hugo, CEO of PSG Distribution.
“Trends do not only run in one direction and reversals occur from time to time. This means it is inherently risky to position a portfolio with only one possible outcome in mind.”
Lamb echoes this sentiment: “As nobody knows for sure when or how the world will emerge from the Covid-19 crisis, it is important that wealth managers position portfolios for a wide variety of potential future outcomes, rather than taking a big bet on one particular scenario playing out.”
Hugo says this reality underscores the importance of a multilayered approach to diversification across shares, sectors, asset classes, managers and geographies.
In this regard, the strength of the global economic recovery supported the second quarter’s corporate earnings in developed economies and now offers investors potential performance across a range of asset classes, believes Viviana Van Agtmaal, Chief Representative Officer at Banque SYZ SA.
She says: “We are entering a ‘normalisation’ phase in monetary and fiscal policy as growth in developed economies stabilises and central banks and governments in the US and Europe remove the support provided during the pandemic.”