Our Investment Committee Meeting’s discussion focused on equity market performance, vaccination progress, PGM companies and our responsibility to create a cleaner emission-friendly environment. Roeloff Horne provides a summary below:
After concluding our technical analysis session we discussed the performance of the Japanese equity market in the light of its relative underperformance compared to other developed market equities. The slow vaccination progress and the negative impact from the Olympics (lack of tourism) are factors that we discussed as potential reasons for a short term bearish equity market trend. Shaun McDade (Head of International Portfolio Management in Guernsey) commented that his Japanese equity managers’ reported better than expected corporate earnings growth despite these setbacks.
We also discussed the EM/Japan underperformance as they are ‘guilty by association’ from a global investor perspective due to China/Asia negative sentiment in markets. Here we refer to the Chinese regulatory influence and a marginal slowdown in economic activity due to the outbreak of Covid-19 in the region. Other ‘negative’ EM factors include the slow vaccination progress and the inability to stimulate their economies in ‘developed market fashion’ by introducing QE and keeping rates low. Many EM countries have already been forced to tighten by starting to increase interest rates (Brazil, Turkey, Hungary, Mexico and Russia all lifted interest rates in 2021).
From a trend perspective, we remarked that Gold is holding up well in the short term relative to the recent sell-off in iron-ore, rhodium, palladium and platinum spot prices. Shaun also remarked that the US High Yield bond spreads have increased significantly over US Treasury yields and it may be a leading indicator to a ‘risk-off’ mood in the short term. Microchip shortage due to production slowdown in Asia is causing vehicle manufacturers to delay production in the short term as the waiting period to obtain these microchips is now stretching to 20 weeks on average. This is a negative read for PGMs in the short term, but we discussed the long term opportunities for PGMs due to the strong global trend to progress to a ‘greener production method in a hydrogen driven economy’. Developments in this theme include Sibanye investing in European companies that manufacture lithium batteries – all in the interest of some of the SA Resource sector companies.
Our discussions underlined the importance of investing in new economic trends/themes and portfolio managers were happy to report that our offshore models and local funds now have exposure to ETFs/funds with exposure to new economy themes. In our offshore portfolios we are exposed to GAM’s disruptive growth fund and in SA funds we hold the Sygnia 4th Industrial Global Revolution Equity ETF – this ETF tracks the SPDR Kensho New Economies ETF. We have also taken the opportunity to use the FirstRand ETN programme to invest in an iShares Clean Energy ETF in our indexation funds at IP.
We experience constant change in the world we live in and the findings in the IPCC report on global warming makes it clear that every one of us has a responsibility to participate in making an effort to change our environment into a cleaner, emission-friendly one.
LOCAL: 4.5 – 5
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At MitonOptimal we utilise our proprietary optimiser to calculate a SA and Global risk rating. This is a rating out of 10, with a rating of 5 reflecting our neutral risk position, 0 being a totally risk-off stance and 10 totally risk-on. We review and set the tactical risk rating on a weekly basis at our global investment meeting, and the outcome of this review may result in a tactical tilt to our portfolios. In extreme circumstances we might review our strategic risk score. For example: when we declare a risk score of 4, it means we are cautious relative to our long term strategic asset allocation plan – alternatively, when we declare a risk score of 6 we are more aggressively positioned relative to our long term strategic asset allocation plan.
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Head of Portfolio Management
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