2019: A year to remember – but will you remember it as it truly was?

By Quaniet Richards

As I sat down to reflect on 2019I felt, frankly, overwhelmed thinking about everything that has happened in the past 11 months.

I was reminded about a book I recently read - “Factfulness” by the late Swedish medical doctor, Hans Rosling.  This insightful book talks about the 10 behavioural instincts that distort our perspectives on the world – two of which particularly resonated with me given how I had been reviewing the year: 
A single perspective where we rely on media to form our world view and, secondly, the negativity instinct where we notice the bad more than the good, believing that things are getting worse when things are actually getting better.

There has certainly been no lack of negative news in 2019 to feed both behavioural instincts to formulate a world view.  Internationally, every time President Trump Tweets, there is a media storm and things seem on the brink of disaster, the US/China trade wars subside and escalate almost weekly, the Brexit saga keeps finding new chapters to write. Meanwhile, closer to home we are bombarded with public stories about President Ramaphosa’s inaction, the teetering SA economy with its high and rising unemployment, Eskom load shedding woes, and the likelihood of prescribed assets, to name a few headline-grabbers.

One only has to attend a social event or scroll through social media to get a sense of how these stories are formulating opinion and perspectives. Negative news headlines have created uncertainty and scepticism for investors and a sense that it is only going to get worse.  
In response to this anxious expectation, South African investors have found safety by investing in money market and income unit funds due to poor equity and balanced fund returns over the past 5 years.

But is this a balanced perspective?

Actually, no. Let’s look at the facts.
  • Had investors remained invested in a globally diversified portfolio, like the Nedgroup Investments Balanced Fund they would have experienced a 12.4% return compared to the average money market fund return of 5.6% or average income fund of 8.4%.*

  • As at the end of November, global equities were up 22.5%** in US dollars for the year to date, despite all the news covering US/China trade wars. Meanwhile, SA equities*** were up 8.5%, albeit concentrated in the performance of the platinum and gold stocks.  South Africa’s euro bond issue was 2.7 times oversubscribed. What do they know that we don’t? 

  • Another misconception is that the markets have been extremely volatile. In reality, it has been close to a multi-year low as shown by the US Volatility Index (VIX) and South African Volatility Index (SAVI) in the chart below.  

    Source Morningstar calculated from 31 December 2018 to 31 November 2019.  All performance is quoted net of all fees with all income re-invested

    **As measured by the MSCI All Countries World Index GR
    ***As measured by the FTSE/JSE All Share Index TR

 

Clearly, we need to nurture a more balanced, fact-based view of our environment. I hope this newsletter serves as a starting point.

The endless criticisms for President Ramaphosa’s inaction was put to rest by JP Landman, our political analyst. In his recently published research note he highlighted all the positive developments and initiatives undertaken by the President including the challenges.  None of which were widely reported in the mainstream media.

Recently, being crowned Champions at the 2019 Rugby World Cup and the R365bn of investment pledges at the second Annual South African Investment Summit in the same week brought a refreshing air of national pride – and more importantly, the pledges were from both domestic and international corporations.  This sends a positive signal to investors that corporate South Africa is becoming less negative on their expected return on investment. 

As South African investors we do face severe headwinds and uncertainty and ignoring them would also be an unbalanced perspective. However, during these periods we encourage clients to remain invested in globally diversified portfolios, not to get distracted by the headlines, focus on reducing costs and demand transparency from their service providers.

According to Dr Hans Gosling and his fact checking, the world is improving much faster than the mainstream media would have us believe. Investors who can avoid the noise and hype in the media and stay balanced and rational in their assessment of the situation, will most likely stay the course in their investments and, as a result, stand to gain from the longer-term scenario.

At Nedgroup Investments this is one of our missions – to ultimately help our investors make better investment decisions. I hope you enjoy the variety of views in this newsletter and may it provide some food for thought as you head into the holiday season.