MoneyMarketing Offshore Supplement November 2021

Offshore SUPPLEMENT

WHAT’S INSIDE ...

Markets change quickly, investments shouldn’t ‘Our long-term results will ultimately be determined by the performance of individual businesses’ Page 8

An adviser’s guide to winning and managing more offshore assets the right way Offshore investing has some pitfalls that are best avoided Page 12

Will rising inflation spoil the party?

The official line has been that the evident price and wage pressures are ‘transitory’ Page 14

Getting to grips with global The debate shouldn’t be about active versus passive, but rather about whether investors are getting value for money Page 16-17

30 November 2021

OFFSHORE SUPPLEMENT

Markets change quickly, investments shouldn’t

BY JOHN CHRISTY Investment Counsellor Group, Orbis

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China risk While we have long been mindful of ‘China risk’ in its various forms, the ever-present possibility of regulatory change has now become a certainty.

Our job is to rationally assess – and seek out – attractive risk based on research and to remain disciplined during uncomfortable periods. This sounds easy on paper, but never feels that way at the time.

Some of the biggest winners in the history of the Orbis Funds – XPO Logistics, NetEase and Samsung Electronics,

International banks – a pocket of value Currently, banks make up about 10% of the Orbis Global Equity portfolio – compared to about 6% of the World Index – with holdings including ING Groep in the Netherlands and Sberbank of Russia. Banks are an even greater overweight in our International and Balanced Strategies.

Variant uncertainty notwithstanding, the demand for loans has picked up as businesses reopen, travel resumes, and people start going back to the office.

Having gone into the current pandemic with ample capital buffers as a remnant of the tighter regulation following the global financial crisis, and having created generous default provisions at the start of the pandemic, banks are now in an unusually strong position. These overstated provisions are starting to unwind just as dividends are reinstated.

"Banks are now in an unusually strong position" Many of the rest of the companies in the portfolio are executing in line with our expectations and, in some cases, exceeding them altogether. Yet a higher than usual number seem to be completely ignored by the market. That only makes us more excited about the long-term opportunity.

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few trends have dominated global markets in recent years. US stocks have beaten their ex-US counterparts, highly valued stocks have beaten cheaper ones, shares of big companies have beaten those of small companies, and businesses insulated from the economic cycle have crowded out their cyclical peers to represent an evergrowing portion of world stock markets.

Most of these trends were headwinds for the out-of-favour shares that we found most attractive, and the pandemic only made it more intense. Pfizer’s vaccine announcement last November was just the sort of catalyst needed to turn some of those headwinds into tailwinds, but this has lost some steam in recent months along with concerns about the COVID-19 Delta variant.

While we are mindful of these trends, our long-term results will ultimately be determined by the performance of individual businesses.

to name a few – made us look foolish on more than a few occasions before ultimately living up to their fundamentals.

We can’t help feeling the same way about a lot of our holdings today.

Our China holdings represent some of the very best opportunities we have found anywhere in the world and continue to warrant large positions in the Orbis Funds.

Our assessments of intrinsic value are now somewhat lower – and we are being increasingly judicious about overall China exposure – but we believe the selloffs in the likes of NetEase and Naspers/Tencent have been excessive. Both NetEase and Naspers offer exposure to exceptional businesses, yet they are currently selling for below-average price multiples.

Why limit yourself to only 1%?

Discover the full picture by investing offshore with Allan Gray and Orbis.

Most investors tend to focus their attention on seeking opportunity locally, but with South Africa representing only around 1% of the global equity market, we understand the importance of seeing the full picture and unlocking investment opportunities beyond the local market.

That’s why Orbis, our global asset management partner, has been investing further afield since 1989. Together we bring you considerably more choice through the Orbis Global Equity Fund and Orbis SICAV Global Balanced Fund.

Invest offshore with Allan Gray and Orbis by visiting www.allangray.co.za or call Allan Gray on 0860 000 654, or speak to your financial adviser.

Allan Gray Unit Trust Management (RF) (Pty) Ltd (the “Management Company”) is registered as a management company under the Collective Investment Schemes Control Act 45 of 2002. Allan Gray (Pty) Ltd (the “Investment Manager”), an authorised financial services provider, is the appointed investment manager of the Management Company and is a member of the Association for Savings & Investment South Africa (ASISA). Collective investment schemes in securities (unit trusts or funds) are generally medium- to long-term investments. The value of participatory interests or the investment may go down as well as up and past performance is not necessarily a guide to future performance. The Management Company does not provide any guarantee regarding the capital or the performance of the fund. The Orbis Global Equity Fund invests in shares listed on stock markets around the world. Funds may be closed to new investments at any time in order to be managed according to their mandates. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request from the Management Company.

8 www.moneymarketing.co.za 4366_ORBIS 1%_2021_Chapel_155x220.indd 1

2021/08/06 08:32

Ashburton Fund Managers (Proprietary) Limited (Reg. No 2002/013187/07) is an authorised financial services provider (FSP number 40169) in terms of the FAIS Act, 2002. Ashburton Management Company RF (Pty) Ltd is an approved CIS manager in terms of the Collective Investment Schemes Control Act, 45 of 2002. The Global Leaders Equity Fund is a sub-fund of the Ashburton Investments SICAV; a Luxembourg-registered collective investment scheme approved by the Commission de Surveillance du Secteur Financier (CSSF) and which has been approved for distribution in South Africa in terms of section 65 of the Collective Investment Schemes Control Act, 2002. Issued by Ashburton (Jersey) Limited. Registered office IFC 1, The Esplanade, St Helier, Jersey JE4 8SJ. Regulated by the Jersey Financial Services Commission.

FULLY INVESTED IN BRINGING THE WORLD’S BEST, TO YOU In a volatile and uncertain world, where investment returns are unpredictable, wouldn’t you like the opportunity to access up to 25 of the world’s leading mega cap stocks? Wouldn’t it be even better if they came to you?

The Ashburton Global Leaders Equity Fund is a concentrated portfolio of the world’s most prominent companies as measured by market cap, with the aim of delivering sustainable superior returns over the long term through geographic and sector diversification.

The fund is available in US dollars as a direct offshore offering, or via the rand-based feeder fund without having to utilise your offshore allowance. From R500 per month or a lump sum of R5,000 via the rand feeder fund, you can put your money to work with the world’s best.

Visit www.ashburtoninvestments.com to find out more.

FULLY INVESTED /

A part of the FirstRand Group

30 November 2021

OFFSHORE SUPPLEMENT

Multi-jurisdictional estate planning may be crucial for investors who have assets offshore

BY MANDY DIX-PEEK Head: Fiduciary Services, Old Mutual Wealth

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ccording to the University of South Africa (UNISA), South African households’ real net worth increased by over R1tn from the second to the last quarter of 2020, despite the economic contraction due to the pandemic.

Consequently, more people are inclined to make offshore property investments in popular destinations such as Portugal and Mauritius. In fact, property sales of more than R500m, involving South African and international property buyers, have been concluded in Mont Choisy La Réserve, a luxurious estate in the Indian ocean island nation of Mauritius.

As the trend is expected to continue as more South Africans snap up offshore assets across the globe, it is critical that a will is set up in the jurisdiction of those assets to protect them, as a South African will might not be recognised there.

Where a South African will is not recognised, those assets abroad may be subject to succession law in those jurisdictions. Because there is no one-size-fitsall approach for all countries, the most prudent line of action is to make use of multi-jurisdictional estate planning. This would go a long way in mitigating nasty surprises further down the road.

Currently, by law, South Africans don’t need more than one will if they have assets locally and elsewhere in the world. However, a South African executor is only permitted to manage matters and assets that are held domestically. An offshore will would, therefore, have to be handled by an executor in that jurisdiction,

"Where a South African will is not recognised, those assets abroad may be subject to succession law in those jurisdictions" 10 www.moneymarketing.co.za

or permission would have to be sought for the South African executor to administer the estate. This process can take time and can draw the process out further.

Generally, if someone dies without a will and has assets in a country that recognises South African wills, their assets will devolve according to the South African law of intestate succession.

However, some territories that are popular with South African investors, such as Portugal and other European countries, have forced succession in their inheritance laws.

If someone dies without a will in countries with forced succession, their foreign assets may devolve according to the laws of the country in which those assets are situated.

Not all assets and countries are equal though There are different permutations depending on the asset type and country. For example, in Mauritius, while immovable property is governed by Mauritian law, when it comes to movable assets, the inheritance thereof is governed by the laws of the last jurisdiction of domicile of the deceased or his/her country of permanent residence. This applies to Mauritian and foreign nationals.

Beyond that, South Africans who own or plan to purchase property in Mauritius need to be cognisant that Mauritius is a forced heirship jurisdiction that reserves a portion of the deceased estate for the children of the deceased, and this applies to both Mauritian citizens and foreigners.

Another example is that of Portugal’s inheritance law, which is derived from the Portuguese Civil Code and dictates that the inheritance process should be governed by the laws of the home country of the deceased, if he/

"Some territories that are popular with South African investors, such as Portugal and other European countries, have forced succession in their inheritance laws" she is a foreigner. Furthermore, Portuguese inheritance law follows forced heirship, meaning that certain relatives will be entitled to a portion of an estate, despite what is stipulated in the will.

Another factor for South Africans to consider when planning their estates is double taxation that occurs when winding up an estate. To avoid this, investors should eye jurisdictions where South Africa has double taxation agreements (DTAs). Currently, South Africa has DTAs with Botswana, Lesotho, Swaziland, UK (including Northern Ireland), US and Zimbabwe.

There are a few things all South Africans should consider when planning multi-jurisdictional estates.

The first port of call is engaging with specialists and getting advice on the best course of action. Broadly, this will involve the jurisdiction of choice, the nature of the assets and DTAs. Depending on how these three circumstances stack up, a decision needs to be made about whether a will in the foreign jurisdiction is necessary.

For more information visit: https://www.oldmutual.co.za/wealth/solutions/ fiduciary-services

99.5% OF THE WORLD’S MARKETS ARE WAITING. EXPAND YOUR PORTFOLIO WITH US. There’s never been a better time to consider diversifying your offshore investments into our Investment Portfolio+.

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Appointed beneficiaries have immediate access to capital and can take ownership of the policy or surrender it, all while saving on executor fees.

If you’d like to find out more about Investment Portfolio+ and our wide range of offshore solutions, contact your financial adviser, your regional offshore specialist or visit www.omi-int.com

INTERNATIONAL DO GREAT THINGS EVERY DAY Old Mutual Life Assurance Company (SA) Limited is a licensed FSP and life insurer.

30 November 2021

OFFSHORE SUPPLEMENT

Navigating stagflation risks when investing offshore

BY SCOTT COOPER Investment Professional, Marriott

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fter a great start to the year, international equity markets are coming under increasing pressure.

As an unintended consequence of massive fiscal and monetary stimulus, and the rapid reopening of economies, global supply chains are currently struggling to keep up with a surge in demand. This is placing upward pressure on prices and holding back the global economic recovery, just when pandemic relief measures are coming to an end. As a result, the euphoria of economies reopening has given way to

concerns around stagflation (a situation in which inflation rates are high, and economic growth is low).

The risk of stagflation presents a significant dilemma for economic policymakers, as actions intended to lower inflation may exacerbate the slow-down in economic activity. Over the past few months, economic data has suggested that the risk of stagflation is increasing. Central banks hope, therefore, that inflation is transitory, so they do not have to react by raising interest rates.

At Marriott, we continue to agree that inflation will be transitory, albeit with a longer transition than was originally predicted by many market commentators. It is well known that supply chain bottlenecks, base effects, rising energy prices, shipping delays and other costs associated with the reopening of economies continue to have an impact on global inflation statistics. However, we also need to recognise that some inflationary pressures are stickier than others, such as the shortage of long-distance truck drivers in the UK, which is currently putting upward pressure on wages. These additional costs are flowing through to the final cost of transporting goods, and although the shortages will dissipate over time, they will not disappear overnight.

"Central banks hope, therefore, that inflation is transitory, so they do not have to react by raising interest rates" Our key focus remains to identify companies that will prosper in the long term but can effectively deal with the shorterterm inflationary pressures. We believe the companies we hold in our international equity portfolios are well-suited to current economic conditions due to our rigorous security filtering process. This process ensures a well-diversified selection of stocks with pricing power and resilience – two critical attributes for companies to successfully navigate stagflation headwinds.

Take Procter & Gamble, for example, a company held in our international equity portfolios, which has an excellent track record of growing dividends even through market and economic turmoil. It has increased dividends 65 years in a row,

including a 10% increase earlier this year.

Aside from an excellent track record, the company has a strong balance sheet, is diversified across countries and product lines, and holds market-leading positions resulting in powerful brand loyalty and pricing power. Last year, Procter & Gamble was able to grow its organic revenue and core earnings per share by 6% and 11% respectively, and is pushing through price increases for key product lines in the 2021 calendar year. At Marriott, we believe there are a range of companies that are well-suited to the long term and which can effectively deal with short-term inflationary pressures. Companies of this nature tend to be less volatile and more resilient, meaning that outcomes for investors are more predictable. Our international equity portfolios contain such companies.

These portfolios can be accessed via: • Marriott’s offshore share portfolio (International Investment Portfolio) • Marriott’s international unit trusts (Using your annual individual offshore allowance of R11m) • Mariott’s local feeder funds, which invest directly into our international unit trust funds (Rand-denominated).

An adviser’s guide to winning and managing more offshore assets the right way

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any South African investors regard offshore investing as an effective investment strategy for building and preserving their wealth. When all our assets and investments are held locally, including property and retirement savings, it makes sense to have a certain portion of our wealth abroad.

Investors derive numerous benefits from offshore investing. It gives them the opportunity to minimise their risk through diversification. It allows them to invest in themes of the future – including social networking, ecommerce and electronics – that are not always readily available in the local market. Having assets overseas could also allow investors to retire in a different country, or give their children the opportunity of an international education.

However, offshore investing has some pitfalls that are best avoided. There are many factors to consider when externalising wealth, including income tax implications, exchange control, foreign currency transactions, offshore trusts, and wills and estate planning.

We believe that Discovery Invest’s Guide to offshore investing will provide you with all the information you need to negotiate most of these risks and complexities. It will also help you to create and implement a successful offshore investment strategy, whether you’re a financial adviser or an investor.

It’s important to always gather as much information as possible before making a final decision on an investment. That’s why this guide is a necessary tool to help financial advisers identify and consider offshore investment opportunities and pitfalls, as it enables them

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to offer the best advice.

The guide highlights details of the wide range of investment solutions available, including the benefits and solutions like those offered by Discovery to offshore investors.

For more information, visit Discovery’s Offshore Investment

information hub on our website https://www.discovery.co.za/ portal/investments/offshore-investing-opportunities.

We recommend that individuals consult an accredited financial adviser before making international investment decisions.

International Investment Portfolio Invest offshore in high quality, dividend-paying companies.

More Predictable Investment Outcomes Contact our Client Relationship Team on 0800 336 555 or visit www.marriott.co.za

30 November 2021

OFFSHORE SUPPLEMENT

Will rising inflation spoil the party?

BY PHILIP SAUNDERS Co-Head: Multi-Asset Growth, Ninety One

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nflation is presently investors’ top concern due to supply shortages that have arisen in the wake of the V-shaped recovery.

The persistence of supplydemand mismatches has been highly unusual, and we have to go back to the post-WW2 recovery to find a precedent. Market inflation sensitivity is not surprising given the impact of yet more financialisaton within developed economies, which boosts valuations even as it underpins a system more prone to episodic volatility. The most serious risk for markets is the risk of regime change: if eventually inflation expectations were to become unanchored, the low interest rate regime would be challenged, and central banks would be forced to tighten significantly more than current expectations, with severe consequences for financial asset prices.

The official line has been that the evident price and wage pressures are ‘transitory’. Fed Chair Jerome Powell explained at this year’s Jackson Hole retreat why he believes inflation will subside. In his view, inflation is not broad based, some price surges are already abating, base effects from 2020 will wash out, wage pressures are no threat so far, and longer-run inflation expectations

remain anchored near to the Fed’s target level of 2%.

Furthermore, many of the structural disinflationary headwinds, such as demographics and technological change, will continue to blow over the medium to longer term. The Fed retains this line even as its own median forecasts for core inflation in 2022 have nudged up from 1.8% last September to 2.3% at the most recent forecasts.

In other words, ‘transitory’ may last a little longer.

Some have argued that the Fed no longer cares about inflation, and has pivoted towards a focus of achieving full employment. If inflation temporarily overshoots its target, so the argument goes, today’s Fed will be a lot more relaxed than it was in past incarnations. This is much too strong a view as it conflates time horizons.

Supply-demand mismatches while the economy is restarting cannot be extrapolated into a self-reinforcing inflationary spiral underpinned by permanently higher consumer expectations. In addition, it conflates the new central bank commitment to tolerate higher inflation with a central bank that cares little about inflation. In our view, central banks may have pivoted somewhat but they show no signs of allowing inflation expectations to become unanchored, and thus squandering their hard-won legacy of credibility. They will tolerate probably 2.5% inflation on a sustained basis, but anything more beyond will, in our view, be met with a tightening bias. Finally, while we are not expecting inflation to be quite as low as was the case in the ten years or so after the global financial crisis, we think that Powell is right about the strength of offsetting structural factors.

All this must upset the conspiracy theorists who believe that central banks are secretly conniving in a plan to get inflation up to levels that would help to inflate away government deficits. Short of a set of circumstances that were to result in central bank independence being severely circumscribed by governments, we believe central banks’ ‘reaction function’, or their response to events, has not changed in any revolutionary way.

In the shorter term, the cycle will be determined by growth dynamics. A continuing moderation towards trend growth rates in the key economies would arguably allow excess demand and supply shortages to ease and price pressures to ebb. This is particularly true given that the bar to further increases in inflation numbers are mechanically made difficult by the steep base effects – used cars may struggle to go up 30% for two years in a row. Furthermore, consumer and business inflation expectations, while currently elevated, are adaptive and notoriously unreliable.

The risk to this view is a reacceleration of growth, resulting from widespread herd resistance to COVID-19, which causes a series of rolling demand shocks that disrupt key sources of supply. This causes inflation to remain stickier for longer, forcing central banks to raise rates well above current consensus expectations. We remain in the former camp – ‘high prices tend to be the best cure for high prices’ – and supply responses tend to be what gets underestimated, as does the impact of tightening liquidity; something that is a more likely candidate to ‘spoil the party’.

From connecting in person to over 3 billion connecting on social media.

Change is inevitable.

Why not prepare for it? ninetyone.com/change-changes (Source: Statistat.com, 2020) Ninety One SA (Pty) Ltd is an authorised financial services provider.

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Investing for a world of change

THE DISCOVERY INVEST GUIDE TO OFFSHORE INVESTING

An adviser’s guide to winning and managing more global assets, the right way.

Offshore investing is a key component of holistic wealth planning. That means financial advisers who want to build sustainable revenue and nurture long-term partnerships with high-value clients need to master the fundamentals of offshore investing.

Discovery Invest has applied its leading-edge technological capabities to bring you and your clients the best investment opportunities from around the globe. But technology is simply a tool: it cannot replace the expertise and peace of mind that trusted advisers give to their clients.

That’s why we created the offshore guide to investing. We believe in shared value and we want the best outcome for you and your clients when you invest their wealth globally with us. To download the guide visit: https://www.discovery.co.za/portal/investments/offshore-investing-opportunities

Product rules, terms and conditions apply. This document is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser. Discovery Life International, the Guernsey branch of Discovery Life Limited (South Africa), is licensed by the Guernsey Financial Services Commission under the Insurance Business (Bailiwick of Guernsey) Law 2002, to carry on life insurance business. Discovery Life Limited is a licensed life insurer under the South African Insurance Act of 2017 and an authorised financial services provider (registration number 1966/003901/06). Discovery Life Investment Services is an authorised financial services provider (company registration number 2007/005969/07). The information given in this document is based on Discovery’s understanding of current law and practice in South Africa and Guernsey. No liability will be accepted for the effect of any future legislative or regulatory changes.

RCK_83164DI_4/10/2021_V1

OFFSHORE SUPPLEMENT

Getting to grips with global Global investing is increasingly in the spotlight, but for many South African investors, putting together a diversified global portfolio can be a bit daunting.

MoneyMarketing caught up with two experts from Old Mutual Multi-Managers to talk about all things global. Andreea Bunea is Head of Global Equities, and Busi Ngqondoyi is Head of Local and Global Property at Old Mutual Multi-Managers.

What is the current state of the global investment landscape almost two years into the pandemic?

Busi: In a nutshell, it is still a good environment for investors. We’ve seen strong growth in company profits supported by low interest rates and a recovery in global consumer demand.

However, COVID has not gone away and its impact continues to linger. Global supply chains are disrupted, there are shortages of key items, and outbreaks are still wreaking havoc with production and logistics. All of this has contributed to elevated inflation rates across the world.

Inflation and how central banks react to it is probably the biggest risk facing the market. While we think the disinflationary forces of technology, globalisation and demographics will more than likely reassert themselves, inflation can also prove to be sticky and remain uncomfortably high if all these COVID-related distortions continue to impact prices.

Markets might then question whether central banks are right in viewing it as a “transitory” phenomenon. In fact, central banks themselves might start to sing a different tune about how quickly interest rates are expected to rise. While we try and understand these risks, there is a high level of uncertainty regarding how this will play out. No one can predict the future. The best we can do is to increase exposure to asset classes that are cheaper and ensure our funds are properly diversified.

If inflation is persistent, how could this impact global equities?

Andreea: Inflation is not bad for company profits per se. After all, one person’s inflation is another’s income.

But the valuation that investors have put on global shares – the amount they are prepared to pay for each dollar worth of profit – is elevated partly because they expect inflation and interest rates to be well behaved over time. If this view changes fundamentally, equities can sell off.

However, individual shares and sectors could be affected differently.

The biggest beneficiary of low rates has been the so-called ‘growth’ companies that can generate their own earnings growth – often by taking market share – and who are therefore not as dependent on general economic growth.

Today’s share price reflects the present value of future cashflows a company is expected to generate. When those future cashflows are discounted back to the present using prevailing long-term government bond yields, lower rates make them more valuable today. In other words, to benefit more from lower interest rates, companies need a longer runway of expected cashflows. Cyclical or value companies tend to enjoy expected cashflows much sooner, and therefore benefit less from low rates.

This helps explain why US equities have outperformed Europe and Japan, even though the latter two have lower prevailing interest rates – negative rates, in fact. The US market is dominated by growth companies, particularly the big technology platforms Facebook, Amazon, Microsoft, Apple and Alphabet (Google), that have delivered impressive earnings growth and look set to continue doing so.

And what about property?

Busi: As Andreea mentioned, higher inflation does mean someone’s income is rising. In the case of property, it means rising rental income. For instance, in the case of the US CPI basket, implied and actual rent makes up 40%. Now that’s on the consumer side and most listed REITS earn income from other businesses, but the premise is the same. Inflation is not bad news for listed property.

Then the next question is whether rising interest rates in response to higher inflation can hurt the sector. This is a risk, but yields in the listed property space are already much higher than bond yields and should therefore be able to withstand increases in the latter.

Finally, debt levels in the sector are not excessive, and therefore rising interest rates pose less of a risk. Remember that global property had weak fundamentals going into the 2008 Financial Crisis with weak balance sheets excess capacity.

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Busi Ngqondoyi

The years following the Crisis were spent cleaning house, which means that global REITS generally entered the pandemic in good shape. Unfortunately, this wasn’t the case in South African listed property. Many local firms went into the COVID shock with overextended balance sheets. There are global exceptions, such as we’ve seen with the likes of Evergrande and other Chinese developers, but these companies typically fall outside of the listed property universe, which is dominated by landlords.

Andreea, you mentioned ‘growth’ companies earlier, and of course these shares have far outperformed ‘value’ shares. How should investors think about styles or themes?

Andreea: Growth companies have massively outperformed value companies since the global financial crisis, partly because of low rates, and partly because of technological advances, such as the fact that smartphones are ubiquitous today. The tepid economic growth environment after 2008 favoured growth companies, as investors were willing to pay up for scarce earnings growth. As a result, the valuation spreads between value and growth companies have once again reached close to extreme levels.

In contrast, value companies outperformed their growth counterparts before the 2008 crisis; when the global economy was booming, growth stocks

Andreea Bunea

were de-rating levels of the late 1990s dot. com bubble. In other words, we probably need strong global economic recovery and better fundamentals for value companies to outperform. In contrast, soggy growth and low rates could enable the continued outperformance of growth companies. This is difficult to predict.

Within this long outperformance of growth over value, there have been mini cycles. Markets never move in a straight line.

This is why diversification across investment styles is so important, particularly in the global equity universe, where these factors are much more prevalent than locally.

I don’t think one can successfully time when a particular investment style will come into favour or fall out of favour, as these shifts in performance trends tend to only become apparent with the benefit of hindsight. Moreover, being caught on the wrong side of that trend could be detrimental to relative performance, given the length of such cycles. Therefore, our approach is to combine fund managers whose investment philosophies and processes tend to be broadly underpinned by different investment styles.

Ultimately, we spend most of our time making sure our portfolios are properly diversified and balanced so that we are not dependent on the performance of any one style or particular market trend.

"Our approach is to combine fund managers whose investment philosophies and processes tend to be broadly underpinned by different investment styles"

30 November 2021

Listed property obviously took a knock from COVID as people started working and shopping from home in greater numbers, but it bounced back quite strongly. Were you surprised by the sector’s resilience?

Busi: Yes and no. Our global property benchmark, the FTSE EPRA/Nareit Developed index, fell 42% when the crisis hit, while global equities ‘only’ fell 33%. It also took longer to recover those losses than global equities, which makes sense. However, in the year to end September, property has actually outperformed equities, so it has been catching up of late. The big jump in optimism came in November 2020 when news of successful vaccines first broke.

Obviously vaccination is key to allowing people to gather in offices, resorts and malls.

But the key thing that drives this performance is the diversification of listed property, which is why I’m not completely surprised. In South Africa we tend to think of retail, office and industrial – in that order – but globally there are several other sectors that have done well. Obviously lodging (hotels) and retail (shopping malls) fell sharply when the pandemic broke out, but data centres rallied. The Internet is not quite as virtual as people think. It is made possible by physical things, like servers, that have to go somewhere. Similarly, the growth of ecommerce means demand for warehouse and logistics space has shot up. Healthcare is also a big sector globally, where hospitals, doctors and even laboratories rent space from landlords. Finally, the global residential boom also shows up in the listed space where companies own blocks of flats (or what Americans call multi-family housing) or trailer parks.

How do you go about selecting asset managers to include in your global funds?

Andreea: We determine the asset allocation of our funds and choose specialist managers for each asset class. So there will be equity managers, fixed income managers and property managers. The universe is massive.

There are hundreds of global listed property managers, and even more when it comes to global equity and fixed income. We start by doing a quantitative screen, using the global databases that we have access to. Here we look for some basic characteristics like track record, size, domicile, benchmark, etc.

From this screen, we can do more qualitative research on a short list of managers. The final step is to spend time with managers to find out what makes them tick. We really want to understand their philosophy and process. We want to know who the key people are and how they interact. How do they generate

"The debate shouldn’t be about active versus passive, but rather about whether investors are getting value for money" ideas? How do these ideas end up in a portfolio? When do they buy and when do they sell? How is risk managed?

Once a manager is appointed, we have regular engagements with them to monitor performance, but mostly to make sure we still understand what is behind the performance and whether it ties back to their stated philosophy and process. We certainly don’t want to chop and change managers.

We launched the dollar-based OMMM global UCITS fund range* in March 2020,

but we have been working with the same managers in our domestic funds for a very long time, in some cases more than a decade. So we have considerable experience in doing manager research, selection and ongoing monitoring in the global market.

I take it you prefer using active managers?

Busi: We prefer active managers if we are confident that they will deliver over time, but we also use index funds where appropriate. Ultimately, the debate shouldn’t be about active versus passive, but rather about whether investors are getting value for money.

It is important to remember that even the best active managers won’t outperform their benchmark every day or even every year. Outperformance tends to be lumpy and you need to be patient and stay invested with the manager to benefit from those bursts of alpha.

Too many people chase performance.

They see a fund shooting the lights out, and decide to invest in it after the fact. However, alpha is usually cyclical.

There’s a risk that you sell a manager just as their performance cycle is about to turn, and invest with one who has just peaked. This destroys value over time.

Diversification goes a long way to avoiding these behavioural pitfalls, and therefore we always include more than one manager in each asset class.

The urge to ‘do something’ is often an investor’s worst enemy. By being appropriately diversified, investors can really save themselves from themselves.

That is at the heart of what we do: build portfolios that are suitably diversified across regions, across asset classes and across the best fund managers. *The funds are available on Old Mutual International.

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30 November 2021

OFFSHORE SUPPLEMENT

What the data tells us about the next phase of the pandemic The Delta variant of COVID-19 is key to understanding the current trends around the reopening of the global economy, and what we can expect in the next phase of the pandemic. Schroders’ Data Insights Unit, composed of more than 20 data scientists, has been assessing multiple sources of data to reach the views espoused by Mark Ainsworth herein.

BY MARK AINSWORTH Head: Data Insights and Analytics, Schroders What is the risk of further mutations of the virus as we saw with Alpha and Delta?

This risk is very hard to quantify but all infectious diseases mutate when they are inside your body. This is a risk of having high levels of infection in a population: there are more opportunities for any virus to evolve. We can’t know if there is another variant down the road with the scale of advantage that Delta has over previous variants, but it is absolutely a risk.

Can we look to the UK as a precursor of what we might expect locally?

The UK was the first developed economy to be hit hard by the Delta variant, and this gave other countries an idea of

what Delta becoming prevalent would do in the middle of a vaccination programme.

A useful area of comparison is the regional differences in the UK. The UK saw increased infection levels peak in mid-July as a result of people meeting up during the Euro 2020 football matches in pubs and private homes.

Meanwhile, Scotland saw something similar – but earlier – when its national team was knocked out of the tournament in the first stage.

Will booster jabs be necessary to get back to normal?

Although there is evidence that immunity does eventually wane after being fully vaccinated, that is in the antibodies that are the ‘frontline’ of immune defence.

At the same time, there are T-cells and B-cells in the background that remember how to make those antibodies, which is why protection against death is still strong a long time after vaccination for most people.

There is a useful comparison with Hepatitis-B, where it has been clearly established that three doses of the vaccine are needed to have full immunity against that virus. The Delta variant does appear to be a virus that, like

Hepatitis-B, needs a third dose in order to give enduring protection. However, pursuing this approach does present an ethical dilemma. Most developing nations, such as South Africa, have had a slower roll-out of the immunisation programme and thus vaccination rates are still lower than that of first-world countries. This presents an argument that those third doses should go to those who have yet to have a first vaccination.

“Countries that pursued zero COVID are in for a difficult time, both culturally and administratively” Nonetheless, to provide their populations with the best protection against Delta, governments will probably need to provide a third dose.

What will happen to the countries who pursued a zero-COVID strategy?

Countries that pursued zero-COVID are in for a difficult time, both culturally and administratively, as they attempt to reopen to the rest of the world, as they will have no naturally acquired immunity and will be solely reliant on vaccines.

To view the full version of this article, please visit Schroders’ website at https://bit.ly/3p2C0j1.

Accessing great investment opportunities post unexpected market events

BY CHRISTO LINEVELDT Investment Specialist, Coronation

S

ince the market crash in March 2020, equity markets have gone on to achieve successive record highs. But these have been off the foundations of shifts into and out of defensive and then cyclical recovery sectors, based on changing investor confidence in the global economic outlook.

Fundamentals and valuation come first Identifying investment opportunities during unexpected market events requires rigorous research, a deep understanding of risk-reward trade-offs, and patience. Deciding to invest when the immediate future is uncertain takes considerable experience and a willingness to step in when others may be fearful of doing so, instead finding comfort in holding cash until uncertainty passes.

Accessing these great opportunities We have invested in some exciting long-term investment opportunities at compelling valuations that investors can access through our global multi-asset class and equity-only funds (Coronation Global Capital Plus, Coronation Global Managed, Coronation Global Optimum Growth and Coronation Global Equity Select). Many of these businesses are recovery stocks that have proven their mettle during COVID-19 and we are very excited by the potential they offer long-term investors. See adjacent table for more detail.

Coronation is an authorised financial services provider.

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From Sydney to Shanghai.

For more than two decades, Coronation’s offshore investments have given you access to the world’s leading growth opportunities. Today, we see that opportunity in the post-pandemic recovery sectors, such as travel, brewing and luxury goods.

To invest offshore with Coronation, ask your financial adviser or search ‘Coronation offshore’.

coronation.com Coronation is an auth o r ised fi n an c ial ser v ices p rov id e r.