Top tips for adviser-client discussions on market volatility
The wonderful thing about fibre lines, the internet and Zoom is that financial intermediaries, and the journalists who write content for them, can attend investment presentations without leaving the comfort of the home office. Podcasts, vlogs and webinars were all the rage during the national lockdowns in response to the 2020 COVID pandemic, and will likely make a comeback as fuel prices soar on the back of the 2026 Iran-Israel-US war.
Addressing advisers’ concerns
The PSG Asset Management ‘Burning Questions with the CIO’ format works because it allows the asset manager to collate and then respond to financial advisers’ economic and investment concerns in a concentrated, 30-minute presentation. In his brief introduction, Nirdev Desai, National Head of Sales at PSG Asset Management, said webinar invitees had expressed an interest in asset allocation views, commodity cycles, inflation versus stagflation and the evolving geopolitical risk landscape, to mention a few.
He asked the asset manager’s Chieve Investment Officer (CIO), John Gilchrist, to comment on whether there had been any portfolio shifts to position for, or in response to, the geopolitical shocks filtering through global financial markets in February and March 2026. “We have actually raised the levels of cash in most of our funds,” Gilchrist said. “Using our Balanced Fund as an example, you will see foreign cash at over 5%, domestic cash at 2% and foreign bonds at 5.3%.” SA bond duration was reduced during January and February, especially in low risk funds.
Turning to equities, the CIO commented on energy-related exposure in the Balanced Fund reaching 16%. “We also focused specifically on making sure that we had good diversification across our funds, [and that the] different factors and exposures were not all concentrated in one space,” Gilchrist said. Protection against market pullbacks is provided through significantly out-of-the-money put options. At the height of the March 2026 market pullback, these positions were reducing the fund’s effective exposure by 7% to 8%.
Active management benefits
A quick look at historic portfolio returns suggests that active management is the way to go. The Balanced Fund outperformed its peers in March 2026, and delivered close to 28.5% over the 12-months to 31 March. Gilchrist did not want to read too much into past performance, citing the market’s cyclicality. But he could not resist mentioning that the fund ranked second out of 272 funds over one month; fifth out of 255 over 12-months; and first out of 219 over five years.
Specific equity-related decisions include adding to gold and retail sector exposures and topping up on technology, through Prosus. “We like going to out-of-favour areas of the market, particularly when they get sold off and the fundamentals do not align with where the prices are sitting,” Gilchrist said, explaining why retailers were back on the buy list. The fund also trimmed its exposure to energy, diversified miners and platinum stocks.
Desai asked whether derivatives were better for insulating multi-asset portfolios from excess volatility than diversification. Gilchrist responded that it was difficult to hedge against geopolitical events. First, you cannot predict what geopolitical shock may occur, and second, it is impossible to predict how that shock will impact the market. “There are countless examples of events occurring and the impact on the markets being completely different to what people anticipated,” he said. “So, generally, a well-diversified portfolio is the way to go.”
Energy supply and demand dynamics
The CIO explained the May 2024 decision to increase the fund’s exposure to the energy sector as being backed by supply and demand dynamics. “The geopolitical and inflation ‘safe haven’ characteristics of energy is underappreciated,” he said, adding that the decision was a direct response to long-standing tensions in the Middle East region. In this example, loading up on the energy sector illustrates how asset allocation, or diversification, can be as effective as hedging.
Attendees asked about the outlook for commodities and precious metals, and what gold might do if the Iran-Israel-US war dragged on. PSG Asset Management has been watching gold for some time, commenting on its potential as far back as October 2024. The team’s main gold mining holding, AngloGold, has increased in value by around 3.3 times. Gilchrist said that gold’s recent rise was likely due to momentum investors and speculators piling in, resulting in gold behaving more like a risk asset. He remains upbeat about gold’s longer-term fundamentals.
The CIO then changed track, saying that a prolonged Middle East conflict would transmit through markets through inflation, initially, and then economic growth. “We saw bond yields move up quite substantially on the concerns of inflation; what has probably been less focused on is the impact on growth … when you start getting situations where oil is not available, the impact on growth is massive,” Gilchrist said. He warned that oil and oil by products were baked into the modern economy, and that the effect of the Strait of Hormuz closure was yet to be felt.
Inflation to stagflation
If inflation rises even as economic growth contracts, the sceptre of stagflation looms. One of the advisers asked whether the conflict had heightened the risk of stagflation, and if so, how asset managers would respond. Gilchrist conceded that the high growth, reasonable inflation scenario that informed decision making earlier in the year had given way to a lower growth, high inflation path. He said the world has only spent around 11% of the time since 1970 under stagflation. Commodities and gold do well during such periods; equities and the US dollar, less so.
The prospects for emerging markets (EM) were next up. Gilchrist singled out Brazilian and South African government bonds for special mention, saying that both typically offered good compensation for known risks. Brazilian bonds still offer a near 10% real return. But the asset manager has reduced duration exposure in the domestic market, particularly in January and February. “At yields of 9% and above, we think there is good value [in SA Government Bonds], being quite selective,” he said.
Advisers were quite inquisitive about PSG Asset Management’s apparent about turn on Naspers-Prosus. The argument for increased exposure to the share is compelling, as it offers a near-40% discount to China’s Tencent, which in turn trades at a mere 13 times price-earnings. “That is the cheapest Tencent has been for 20 years,” Gilchrist said. And that means the valuation finally ‘fits’ the selection process. Discovery Limited also came in for high praise as an underappreciated 3M share with exceptional growth opportunities.
FAnews has covered PSG’s 3M share selection methodology on numerous occasions over the years. It involves a rigorous assessment of management quality, identification of an enduring competitive moat and allowing for a sufficient margin of safety. This process applies equally in domestic and offshore equity markets.
Consider what is priced in
Overall, investors were encouraged to consider South Africa’s prospects through a less emotional lens and consider “what is priced in” over news flows. “The price at which a lot of South Africa assets are trading already incorporate some of the risk,” Gilchrist concluded, referring to speculation on the country’s future political path.
Writer’s thoughts:
Stagflation is loosely defined as a period when an economy experiences slow growth and rising unemployment in a rising inflation environment. Do you think the 2026 Middle East conflict will send South Africa into a period of stagflation? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
