Manager Comments – 30 April 2024
Investment Manager Report: Multi-Asset Investment Insights for 2024
Overview
This report synthesizes key insights derived from multiple discussions among investment managers from Present Investment Management, Sentio Capital Management, Visio File Management, and Schroders, Old Mutual Wealth, Equilibrium, Glacier Invest, Schroders, Ninety One, Flagship Asset Management and M&G Investments. The discussions all focused on the current and anticipated conditions in the multi-asset investment landscape in 2024.
Market Outlook and Economic Forecasts
The prevailing sentiment among investment managers is cautiously optimistic regarding the global economy, with significant emphasis on the variability of future market conditions. Key insights include:
- Interest Rates and Inflation: The peak of interest rate hikes appears to be behind us, with expectations leaning towards potential rate reductions later in the year. Although inflation is believed to have peaked, its medium to long-term trajectory remains uncertain.
- Recession Likelihood: Opinions vary on the potential for a recession in 2024, with predictions ranging from a soft landing to high uncertainty in economic forecasts, underscoring the need for readiness for various outcomes.
Strategic Investment Approaches
- Equity and Bond Markets: The evolving correlation between equity and bond markets has posed challenges to traditional 60/40 equity-bond strategies, particularly due to atypical market behaviors observed since 2022.
- Commodities and Alternatives: Diversification into commodities and other alternative investments is strongly recommended as a hedge against traditional market volatility and as part of a robust multi-asset strategy.
- Geopolitical Risks and Portfolio Hedging: The importance of considering geopolitical risks was highlighted, with recommendations to incorporate gold and other safe-haven assets to hedge against potential market downturns triggered by global conflicts.
Investment Opportunities and Challenges
- Tech Sector: There are concerns over the overvaluation in the technology sector, balanced by recognition of the growth potential driven by structural trends like AI integration. Selective investment in high-quality tech stocks with solid fundamentals and reasonable valuations is advised.
- Emerging Markets: Opportunities in emerging markets, particularly in Asia and specifically China, are noted, despite ongoing concerns about structural challenges in the region. These markets are seen as offering significant valuation gaps.
Company-Specific Investment Strategies
- South Africa and Emerging Markets: We have identified value opportunities in South African equities, which now appear cheap with low earnings multiples. Accordingly, we are shifting our focus from industrials and financials to these value exposures. While China also presents valuation opportunities, we remain cautious due to structural, fiscal, and regulatory concerns and will not increase our exposure there.
- India’s Market Opportunities: India’s rapidly growing manufacturing base represents a significant opportunity, and we are actively increasing our exposure to this market.
- Technology Investments: Our position on tech stocks remains stable, driven largely by the performance of the “Magnificent 7” (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Tesla, and Meta). We anticipate a shift in focus from chip and hardware suppliers to end-user service providers such as Alphabet and Meta as the AI industry matures. We also expect other U.S. stocks to begin catching up to these leading stocks amid continued growth.
- European Investments: The EU market remains somewhat cheap, and we plan to maintain our investments there.
- Fixed Income Strategy: Our research indicates that the correlation between stocks and bonds is over-reported. We will maintain our investments in Namibian bonds but will decrease our exposure to South African bonds due to these findings.
- Gold: We have already incorporated gold into our Regulation 28 compliant portfolios.
Remaining Invested
It was clear from the discussions that managers are encouraging investors to remain invested as all the manager were taking a fully invested approach due to the many current opportunities for good growth.
Conclusion
This report provides a comprehensive overview of the current multi-asset investment landscape, emphasizing strategic diversifications and preparedness for multiple economic outcomes as 2024 approaches. Our company-specific strategies are aligned with these insights, focusing on emerging market opportunities, cautious engagement with high-risk regions, and a balanced approach to technology investments. This report offers a foundation for informed decision-making in investment activities, helping portfolio managers and institutional investors understand the strategic recommendations and diverse perspectives shared by leading investment management companies, alongside our company-specific strategic directives.
Investment Manager Report Late Addendum: Summary of Interest Rate Trends
The Reuters article outlines factors contributing to the possibility of sustained high interest rates. Key drivers include:
- Increased Government Borrowing: Investment in climate initiatives and military.
- Demographic Shifts: Aging populations affecting labor markets.
- Economic Impacts of Climate Change: Strain on resources and infrastructure.
- Technological Advancements: Influence of AI on productivity.
- Geopolitical Tensions: Global instability affecting markets.
These elements suggest a potential rise in the long-term neutral interest rate (‘R-star’), though some economists argue that productivity and demographic trends may counterbalance this increase.