Look across the valley - What do we have to look forward to beyond current performance

Victoria Reuvers, Managing Director of Morningstar Investment Management SA

Just as we thought Covid-19 was behind us, 2022 bombarded us with an array of new curve balls. From the war in Ukraine, inflation last seen in the 70s, rising interest rates and global markets experiencing drawdowns that rank as one of the worst on record, investors had very little (if any) place to hide.

It almost feels like there’s a new headline about a new disaster happening somewhere around the world every day and quite frankly, it’s rather depressing.

In the words of Peter Lynch, “You can’t see the future through a rearview mirror.” Imagine having to drive your car up a steep hill, with numerous bends and turns, not looking through your windshield and only being guided by the view in your rearview mirror – it’s a pretty terrifying thought. Given that we drive by looking out the windscreen and not by looking in the rearview mirror, I want to change how we are looking at this crisis.

Yes, things are bad and there is a range of factors to support this. Market returns year to date are terrible and I don’t think anyone is looking at their statement with a smile on their face. However, these performance figures are what is currently visible through our rearview mirror, and not our windshield. What is important is what lies ahead and how we as investors are positioned to recoup losses and generate wealth.

Is there anything to look forward to?

Predicting the future is not a skill possessed by investment professionals. We thus pay very little attention to market predictions. We honestly have no idea what will happen with regard to politics, economics and short-term currency and market movements. So, what do we know….

1) For the first time in over a decade, investors are being rewarded for owning bonds.
The reaction of central banks to raise interest rates on the back of inflation is painful but it is the medicine the market needed - a reset to an environment where asset classes are fairly priced. Medicine is rarely easy to swallow but it is a necessary remedy.

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