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

By Quaniet Richards

As I sat down to reflect on 2019, I felt, frankly, overwhelmed thinking about everything that has happened in the past 11 months. There is a general air of anxiety as people worldwide try to find stability and certainty. I was suddenly 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 and 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’s load shedding woes; and the likelihood of prescribed assets, to name a few headline-grabbers.

One has only to attend a social event or scroll through social media to see how this sentiment is formulating opinion and perspectives. Negative news headlines are fuelling uncertainty and scepticism for investors and entrenching a sense that it is only going to get worse.
 
In response to this expectation, South African investors have sought 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 over the past year in a globally diversified portfolio like the Nedgroup Investments Balanced Fund they would have experienced a 12.6% return - net of all fees, compared to the average money market fund return of 5.6% or average income fund of 8.4%. 

• As at the end of October this year, global equities were up 19% in US dollars for the year to date, despite all the news covering US/China trade wars. Meanwhile, while SA equities were up 11%, 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 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. 

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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 your 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 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.