Sailing your client portfolios through stormy seas
Clients who want to maximise their investment and retirement fund balances should make ‘time in the markets’ their lifetime investment mantra, while treading carefully around what investment guru Sir John Templeton once described as the four most dangerous words in investing: ‘this time is different’.
Investment gems for advisers and clients
These and other investment gems were ‘on tap’ at a recent Allan Gray The Times event, during which three presenters tried to make sense of what really matters to your clients. Sean Munsie, a portfolio manager at the asset manager, stepped up to the podium to comment on the macro factors affecting asset allocation and share picking in the South African context. “The last year has been a good time to be invested in South Africa equities, and similarly in domestic bonds,” he said, sharing the 12-month performance numbers to 31 March 2026.
Munsie pointed out that local asset classes were unlikely to achieve a repeat of 2024 or 2025 returns this year, saying that the JSE All Share was fairly flat midway through May, and that the All Bond index was similarly uninspiring. The salve for the current market uncertainty was offered as diversification coupled with a relentless search for out-of-favour value opportunities. He then shared a compelling ocean-themed narrative to help your clients sail their investment ships through today’s choppy waters.
The idea came courtesy of the closure of the Strait of Hormuz. Before the 28 February US and Israeli military action against Iran, around 20 million barrels of crude oil flowed to global markets through that narrow waterway each day; currently, only around 5 million barrels per day are reaching markets via a hastily recommissioned pipeline connecting Saudi Arabia to the Red Sea. The resulting oil supply crunch has sent prices for Brent crude oil, diesel and petrol, through the roof. SA’s year-on-year CPI for April has already climbed to 4% as a result.
Sailing client portfolios through choppy waters
In the following paragraphs, FAnews will retell the story of an investment voyage that must negotiate icebergs, head- and tailwinds and potential mutiny, with ballast as one of the foils against rough seas, and the odd lighthouse to set course to.
Icebergs were equated with risks that affect markets. Attendees were asked to think of the many past conflicts and financial market crises as the unseen part of an iceberg. “Despite trading through all this turbulence, the MSCI World Index has delivered an 8% return in dollars, and around 15% in rand, since 1969,” Munsie said, pushing the ‘time in the markets’ theme. Pessimists sound smart, but it is the optimists who lock in returns by investing through the dotcom crash; the GFC; COVID; the July 2021 KwaZulu-Natal riots; and the April 2022 floods.
The presenter equated wind to a powerful force that can push returns higher, or hold them back. Two themes that fund managers are leveraging for better-than-trend equity returns include the artificial intelligence (AI) boom and prospects for emerging markets. “Companies have spent more on data centres in six years than on building out the United States’ railroad network over the course of 70 years,” Munsie said. Alphabet, Amazon, Facebook and a handful of others will spend USD700 billion in 2026, and close to a trillion dollars in 2027, on AI infrastructure.
Emerging markets blowing hot and cold
The emerging markets tailwind translates to portfolio returns through government bond yields. Munsie said that before the latest Middle East conflict kicked off, the South African 20-year bond yield had trended back to levels last seen in 2010-2011. He said that factors such as the Government of National Unity (GNU) and the shift to a 3% inflation target regime had made South African equities and bonds more attractive over the longer-term; but that low economic growth and looming inflationary pressures might become headwinds over the short-term.
Ballast is weight added low in a ship to keep it stable, balanced and sitting properly in the water during a voyage. In the asset management context, you might think of the defensive assets that provide stability through periods of turmoil, thereby smoothing overall portfolio returns. Gold has climbed significantly in the past year or two; but over a longer period, it shows annual compound returns quite close to that of equities. The presenter said the ongoing economic decoupling of the US from the rest of the world could contribute to further gold strength.
“The big run in the gold price has changed the composition of the all-share index materially … and gold and platinum miners now make up 28% of the market capitalisation,” Munsie said. This means a passive investor who tracks the JSE All Share Index has significant commodities exposure. A fascinating slide compared the value of the South Deep mine, just one of the assets in the Gold Fields stable, to out-of-favour retail shares. You could swap this mine for all of Clicks plus Dis-Chem, or the whole of Mr Price plus Truworths plus Woolworths.
Staying true to investment principles
The concept of mutiny was offered as a proxy for human behaviour in the broader analogy of sailing an investment portfolio through choppy seas. Munsie positioned this as “being true to your investment principles, even when times get tough.” Advisers need to consistently remind their clients of the saying favoured by investment greats like Charlie Munger and Warren Buffett, which is that long-term returns derive from ‘time in the markets’ rather than trying to time your entry and exit.
Advisers and clients should be quite familiar with this refrain by now. One slide showing the rolling returns on the US market since 1950 confirmed a narrowing of return outcomes as time periods increase; for periods exceeding 20 years, the return is always positive. Asset class return data over similar time frames shows that equities outperform bonds and cash over the long-term too. Data drawn from South African markets supports the same conclusions.
Finally, “we think of the lighthouse as our investment philosophy … being long-term orientated; building a portfolio from the bottom up; doing the fundamental analysis; concentrating on valuations; and when it demands and the odds are in our favour, acting in a contrarian nature,” Munsie concluded. As a valuable lesson to advisers and clients, he explained that sticking to your philosophy does not mean you will not have to endure periods of underperformance against your peers.
Adding discipline to time
Discipline is one of the most important investment principles. Clients who obsess over short-term comparisons, or change course every time a competitor or asset class pulls ahead or falls behind, risk doing lasting damage to their long-term financial plans. As an adviser, your role is to keep your clients anchored to their investment philosophy and plan. Why? Because investment returns are inextricably linked to staying invested long enough for your funds’ investment methodology to bear fruit.
Writer’s thoughts:
I really enjoyed the Allan Gray The Times analogy of sailing an investment portfolio through choppy seas. Do you think this storytelling approach helps clients stay true to their investment principles through market volatility? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
