How to deal with uncertainty
‘Big events’ not the only factor to consider when building an investment strategy, says asset manager
Big events such as the upcoming general elections usually trigger uncertainty among investors – mainly generating fears of low growth.
But PSG Asset Management CEO Anet Ahern said it was dangerous to use a singular event, theme or outlook to build an investment thesis, rather than fully assessing both the global and local markets.
Addressing more than 50 independent financial advisers at the Sun Boardwalk Hotel in Port Elizabeth on Thursday, Ahern highlighted that uncertainty about SA’s political and economic future had heightened perceived investment risk.
However, in her presentation, Ahern said that while environments of fear and uncertainty were often associated with low prices and low expectations – these provided attractive entry points for investors.
Uncertainty, she said, was often spurred by big events such as the elections.
“We know right now, that a lot of investors are saying – what’s your plan around the election?
“How are you structuring my portfolio for the election?
“And we want to caution against that. What we have learnt over the past few years, is that when a big event comes, people want a recipe to invest around that event,” she said.
“Investors then do a lot of scenario forecasting.
“They forecast how markets would respond if a particular event occurs, and in turn how the markets will respond.
“The danger with that is that the market isn’t that simple,” Ahern said.
But Ahern said key lessons were to be taken from US President Donald Trump’s election as well as Brexit.
“Not only did both Brexit and Trump’s election happen completely contrary to our expectation, but the outcome effect on the market was nothing like anybody had predicted.
“What we learn time and time again is that forecasting is very difficult and the only way you can really protect yourself against events is to have a diversified portfolio and then also ensure that you are not exposed to over-valued assets.”
The particular areas for opportunity she noted for 2019 included government bonds, offshore equities and local GDP-sensitive equities (SA listed companies).
“We are not here to tell you that everything is going to be okay. We can’t wish away the problems that this country faces.
“A key take-out from 2018 is that investing isn’t easy.
“But it is seldom that the comfortable decision gives you the best outcome.”
PSG chief investment officer and fund manager Greg Hopkins addressed the question of whether to remain invested or rather flee into cash, in the company’s latest quarterly publication Angles & Perspectives.
Hopkins noted that SA offered notable long-term investment opportunity, and while the short-term outlook might feel uncomfortable there was value in remaining invested.
“Cash levels in our portfolios have declined over the past two years, as we continue to find what we believe to be above-average companies at below-average prices.
“SA government bonds are offering the potential for equity-like returns at substantially lower levels of risk.”