Navigating turbulent markets with a new generation mindset

With the current turbulence in global and local markets, there are a multitude of global and local factors that determine how different asset classes perform, both individually or as part of a multi-asset class portfolio.

This year it has become clear that financial market conditions can profoundly change direction overnight on a Trump tweet and that the outlook for the economy is unclear, with opinions divided on whether the global economy is heading for recession or not.

Sanlam Select navigates these challenging conditions by following a dynamic investment approach that gives advisers access to next generation asset managers that offer additional sources of return, while actively managing the risks. Sanlam Select managers are chosen because they have complementary skills to Sanlam Investments’ existing capabilities, agile investment approaches and a proven ability to deliver investment results.

Fixed income as a risk, not return, tool
In a world where there are increasing concerns that global bonds may be entering bubble territory and local bond valuations are pricing in the risk of unsustainable government debt levels, Terebinth Capital, a specialist fixed income manager and manager of the Sanlam Select Strategic Income fund, focuses on ensuring it has a deep, strategic understanding of all fixed income market variables.

Currently Erik Nel, Chief Investment Officer at Terebinth Capital, believes there’s a high probability of a muddle-through scenario in SA, with the global backdrop of great importance and local growth struggling to outpace population growth.

Nel approaches fixed income as a risk, not a return, tool and believes that it provides stability to an investment portfolio. He approaches fixed income as a highly complex asset class that is driven by the macro economy and rooted in mathematics.

Terebinth Capital differentiates itself as a fixed income manager through its approach to credit, which it views as a highly cyclical, beta instrument. The manager instead focuses on actively investing in high quality, liquid fixed income investments to derive returns.

Unlocking the equity risk premium
Though more volatile, the other major asset class, equities, proves itself time and again as a vital component of a well-balanced portfolio. But why are equities such an integral part of an investment portfolio?

Lourens Pretorius, Portfolio Manager at Matrix Fund Managers, says investors predominantly buy equity for their inflation protection, the future growth in company earnings and because of the capital growth they offer.

The asset class does come with an equity risk premium to other asset classes that needs to be actively managed. Matrix Fund Managers does this by following a pragmatic approach that aims to produce stable returns.

The team’s philosophy is to meet the investment objectives of clients by prioritising asset allocation and risk management. Within equities, the team are bottom-up stock pickers and style-agnostic, while within the fixed income space, the core view is driven by the macro investment cycle. For them, delivering real returns remain the primary goal in the multi-asset space and is core to their process in managing the Sanlam Select Defensive Balanced and Sanlam Select Absolute funds.

Pretorius and his team look for the real return drivers of the asset classes and build bull and bear cases for each asset class based on the returns that can be expected over the next 12 months. They then look to blend asset classes to deliver a return of CPI plus the investment objective, be it defensive or more aggressive.

Harnessing the macro forces at play
The macro environment is becoming much more important for South Africa is a small, open economy, therefore what happens in the global economy has a great influence on local assets. Successful asset management depends on whether we are nimble enough to respond to the macro forces at play and put together multi-asset classes that serve investors well through all market conditions.

Abax Investments aims to deliver equity-like returns at lower risk levels by relying on its asymmetric mindset and investment approach. The team relies on fundamental valuations of the assets in which they invest and only invests when the risk versus return ratio is favourable. They use stock selection, asset allocation and hedging as downside protection. In so doing, they build diversified portfolios that are robust enough to cope with a range of market outcomes.

Omri Thomas, a Fund Manager at Abax Investments and manager of the Sanlam Select Flexible Equity Fund, focuses explicitly on avoiding the downside by tapping into a mix of skillsets. This allows the team to analyse companies across regions and capital structures because in a highly competitive environment, investors have to look further afield for opportunities where others aren’t looking.

Looking ahead
In a world where uncertainty continues to prevail, the unique construct of Sanlam Select enables Sanlam Investments to have complete oversight as well as performing all non-investment related functions, allowing for the investment manager to focus purely on managing the fund. These independent asset managers were selected following a stringent manager research process and the fund range encompasses the full spectrum of risk profiles which can be used as a stand-alone investment or within a solution.

The information contained herein does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act. Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision.

The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium- to long-term investments. Please note that past performance is not necessarily a guide to future performance, and that the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved Manager in Collective Investment Schemes in Securities. Additional information of the proposed investments, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. All the portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002 (“CISCA”). The funds may from time to time invest in foreign countries and therefore it may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates. A copy of the Performance fee Frequently Asked Questions can be obtained from our website: www.sanlaminvestments.com. The portfolio management of the Sanlam Select portfolios is outsourced to financial services providers authorized in terms of the Financial Advisory and Intermediary Services Act, 2002. Standard Bank of South Africa Ltd is the appointed trustee of the Sanlam Collective Investments Scheme.

Sanlam Investments consists of the following authorised Financial Services Providers: Sanlam Investment Management (Pty) Ltd (“SIM”), Sanlam Multi Manager International (Pty) Ltd (“SMMI”), Satrix Investments (Pty) Ltd, Graviton Wealth Management (Pty) Ltd (“GWM”), Graviton Financial Partners (Pty) Ltd (“GFP”), Radius Administrative Services (Pty) Ltd (“Radius”), Blue Ink Investments (Pty) Ltd (“Blue Ink”), Sanlam Capital Markets (Pty) Ltd (“SCM”), Sanlam Private Wealth (Pty) Ltd (“SPW”), Sanlam Credit Fund Advisor Proprietary Limited, Sanlam Africa Real Estate Advisor Proprietary Limited and Sanlam Employee Benefits (“SEB”), a division of Sanlam Life Insurance Limited; and has the following approved Management Companies under the Collective Investment Schemes Control Act: Sanlam Collective Investments (RF) (Pty) Ltd (“SCI”) and Satrix Managers (RF) (Pty) Ltd (“Satrix”).