31 July 2021
INVESTING
Equity: Is it too late to get in, or too early to get out? BY LUIGI MARINUS Portfolio Manager, PPS Investments
T
he unsettled world as a result of COVID-19 and the whipsaw in markets provided opportunities for certain sectors to thrive sooner than previously expected, and has changed the investment landscape. From a South African investor perspective, one of the key questions is around equity – is it too late to get in, or too early to get out? There are many ways to assess the relative attractiveness of equities as an asset class. At PPS, we focus on three factors: valuation, macroeconomic framework and momentum, with the ranking of importance of these factors varying as market conditions change. In the local context, the macroeconomic framework contributes most to informing the neutral domestic equity allocation across the PPS funds. Uncertainties with regard to the roll-out of vaccines, and the impact a third wave may have on the economy, tempers the more aggressive
allocation, should only valuation and momentum be considered. In addition, GDP growth has disappointed when compared to global GDP growth and emerging market GDP growth expectations. From a global context, the macroeconomic framework appears more favourable to equities, resulting in the maximum overweight allocation to global equities. Cash yields have remained close to zero in developed markets, while quantitative easing and
stimulus packages in the US, as well as Europe, have had a positive effect on equity prices. GDP growth expectations have been upwardly adjusted as vaccine roll-outs have consistently improved in developed markets. Valuations have become more expensive in the sectors that have benefitted from lockdowns, but there are areas of the market that remain better priced. Trying to time the entry and exit points with equities should not be a question of whether an investor should have high exposure or no exposure. In the same way, asking whether it is too late to get into equities or too early to sell out of equities assumes a significant change to the allocation. The performance of equities is only one aspect that is considered when deciding on the allocation to the asset class. Being too late or exiting too early is not the important consideration, as the assessment of current conditions and what that implies going forward provides the framework of whether or not to adjust the exposure to equities.
“There are many ways to assess the relative attractiveness of equities as an asset class” Even in an unsettled world, two things are clear: all investment decisions are relative and maintaining an investment process makes investing through difficult periods manageable. A decision to reduce exposure cannot be done in isolation. Following a process reduces the effect of emotion and bias and inevitably leads to a more thorough and considered outcome. Therefore, making sense of an unsettled world is possible. At PPS Investments, we aim to construct sensibly diversified portfolios where components are poised to perform well through different market cycles.
No disruptions during COVID-19: INN8 Mickey Gambale, CEO of INN8, spoke to MoneyMarketing’s editor, Janice Roberts, about how the independent investment platform has coped with the COVID-19 pandemic.
MICKEY GAMBALE CEO, INN8 How quickly did INN8’s platform respond to the COVID-19 pandemic? INN8 is a digitally-led business. It was designed and developed for a fast-moving, ever-changing world. This meant that we were fortunate enough to have a team with the mindset to make the shift to remote working seamless. Our systems and processes were designed to be adaptable and accessible securely from anywhere. We were very quickly able to adapt to the workfrom-home restrictions; in fact, we implemented this procedure almost a full 10 days before hard lockdown was announced in South Africa in 2020. It also meant we were able to help our advisers, and their clients, transition to what we knew was coming, by leveraging our experience for their benefit. Operationally, because of the digital DNA of our platform, there were no disruptions. What lessons did INN8 learn from the pandemic? The role of the adviser has been affirmed. In an uncertain time, such as that caused by COVID-19, advisers and the human touch are the elements that can keep clients calm and prevent them from making the wrong decisions. We’ve taken the adviser on our platform from simply surviving in this new world, where they were anxious to retain their clients through a new way of connecting digitally,
“Our local investment proposition will be opening soon to our broader adviser community” 14 www.moneymarketing.co.za
to understanding that the elegant technology that we provide can be used to grow their business in a digital society where they can create and develop new relationships. Crises really force people to change. We went from one adviser sharing in 2018 how he had concluded transactions over Skype, having never met the client, to remote and virtual meetings being the norm. That is the resilience of human nature. How much has INN8’s platform changed since its inception, and looking ahead, what changes do you foresee in the future? Our vision is to change the way investments are done. This means we are constantly innovating and looking ahead. To us, innovation must matter and must make a difference to the business of our advisers and the lives of their clients. Our offshore investment platform has seen sustained growth over the last two years and our local investment proposition will be opening soon to our broader adviser community. We believe this will soon become the benchmark for investment platforms in South Africa. Things you can expect from us include more automation where possible, more robust compliant recordkeeping, and even simpler ways to do things. For example, we have on our local platform an OTP-less onboarding process, which is the first in South Africa, and it is FSCA approved. What differentiates INN8 from other platforms? Our platform is purpose-built with the adviser at the centre of the design, and it fits their way of doing business. We are using benchmark technology to deliver the solutions required in an ever-changing world, by the best people who provide exemplary service – which is crucial to any investment platform business.
