MEETING PURPOSE
Our investment team aim to meet every week to discuss the macro environment and how this could impact our current and future portfolio construction.
KEY TAKEAWAYS
- Risk-On Stance: Team maintains a risk-on approach, slightly increasing exposure in specific asset classes amid a bull market outlook.
- Cash Strategy: Holding 4-5% cash to manage inflows and short term shocks, with focus on South African property and US equities.
- Market Drivers: Fed’s dovish stance, expected rate cuts, and bearish dollar to support emerging markets and commodities.
- SA Bond Market: Ten-year government bonds’ yields dropped from 11.15% to 8.45%, indicating improved investor confidence despite political risks.
- AI Adoption: Emphasized as crucial for competitiveness, influencing investment decisions and facilitating efficiency in operations and customer service.
- Meeting Structure Change: First monthly meeting to focus solely on investment team strategy, enhancing decision-making and operational efficiency.
TOPICS
Market Outlook and Portfolio Positioning
The team agreed on maintaining a risk-on stance with a marginal increase in exposure to select asset classes, reflecting confidence in a constructive bull market despite potential near-term volatility.
- Roeloff Horne emphasised holding 4–5% cash across funds, mainly to manage inflows and possible short term shocks, proposing slight overweight positions in South African property, SA Inc bonds, the equally weighted S&P 500, and emerging market value (EMVL) indexes.
- The recent 5% correction in SA property was seen as a buying opportunity, confirming a need to increase exposure since October.
- Offshore, the focus is on non-tech US equities and EM value, avoiding full tech exposure by relying on active managers for selective risk.
- Expected market drivers include a global rate-cutting cycle and a bearish dollar environment supportive of risk assets.
- Andy Pfaff confirmed the technical momentum in the S&P 500 equal weighted index, highlighting strong weekly chart signals without dramatic downside risks.
- He noted the Dow and US industrials rallying strongly, supporting the case for broadening market participation beyond tech.
- Team members highlighted the Fed’s dovish stance and QE restart expectations as bullish for emerging markets, commodities, and risk assets overall.
- The group expects volatility around the December 19 tariff decision, but consensus is that it poses limited risk to corporate profit margins, with fiscal rather than company fundamentals being affected.
- The strategy includes a barbell approach holding around 80% risk exposure, balancing growth and defensive assets while preserving agility to reduce risk if conditions deteriorate.
South African Market and Political Content
The team sees improving fiscal and market tailwinds in South Africa, supporting selective risk exposure despite ongoing political uncertainties.
- The SA bond market’s risk premium remains attractive, with ten-year government bonds declining from 11.15% to 8.45%, signaling investor confidence.
- This contrasts with rising bond yields in the US, Germany, and France, suggesting relative strength in SA debt.
- Political uncertainty remains a risk, especially around the 2027 ANC leadership transition, but the team views the current coalition government as providing some stability.
- The announcement that Gupta ally Gwede Mantashe is stepping down was viewed as a positive development for political stability.
- The team remains cautious about South African corporates with international exposure, citing the controversial Mr. Price acquisition at a historic P/E of 37, reflecting skepticism about offshore expansion and integration risks.
- Financial sector stocks and banks are highlighted as key opportunities locally due to strong earnings results and cost-cutting through AI, representing defensive yet growth-oriented plays.
- The group noted record net reserves of R70 billion and a strong R57 billion Vero bond issuance oversubscribed four times, indicating robust fiscal and investor support.
- There is cautious optimism that political actors will not disrupt the current positive economic momentum driven by commodity prices and foreign investment inflows.
AI and Technology Insights Impacting Investment Views
The meeting revealed a shared belief that AI adoption is a critical competitive factor, influencing both market outlook and company selection.
- Roeloff Horne shared personal experience using AI tools for asset allocation research, finding results closely aligned with current portfolio positioning, reinforcing confidence in their strategy.
- The consensus is that companies and countries not embracing AI risk falling behind irreversibly, echoing Jacques de Kock’s warning that laggards will become losers.
- AI-driven capex spending, exemplified by Oracle’s $40 billion increase, is seen as a major market driver, supporting growth in software, chips, and related sectors despite some risks of overspending.
- The group noted potential winners beyond tech giants, including banks that can cut costs drastically with AI and retailers that can unlock new earnings, pointing to selective stock picking in traditionally defensive sectors.
- Practical AI applications in customer service and operations were discussed, exemplified by Vodacom’s automated contract cancellation system, illustrating cost savings and efficiency gains.
- The team emphasised AI as a tool for research and decision support rather than a source of unquestioned truth, highlighting the need for human oversight to avoid errors or misinformation.
Meeting Process and Future Scheduling
The team decided to restructure meeting formats to enhance decision-making focus and maintain operational efficiency.
- Moving forward, the first meeting each month will be strictly for the investment team, focusing on portfolio positioning, risk assessment, and strategy without sales or client presence.
- A second monthly meeting will include sales teams and clients, allowing for tailored presentations and feedback but separated from core investment debates.
- This format aims to foster more candid discussion and challenge within the investment team, as expressed by Roeloff, who prefers debating ideas without external pressures.
- Invitations and meeting logistics will be managed by Jacques de Kock and Kayla, reflecting new processes for 2026.
- The next meeting is tentatively planned for December 20th or early January, depending on market developments and business needs.
Technical and Tactical Highlights
Technical analysis supports the team’s current positioning and guides tactical adjustments.
- Andy Pfaff highlighted strong momentum in the Russell 2000 and 1000 value indexes, suggesting a broad market rally beyond tech.
- The USD/ZAR currency pair is showing signs of breaking key technical resistance, reinforcing the case for increased offshore exposure.
- Market breadth is improving, with industrials and financials rallying alongside tech, indicating a healthier market environment.
- The gold/silver ratio is reverting, with silver gaining relative to gold, supporting bullish commodity positioning.
- The team is watching global bond curves for steepening, anticipating policy-driven divergence between short term stimulus and long term market pricing.
- The Dutch pension system’s regulatory changes allowing more short term bond purchases may influence global bond market dynamics and government financing costs, a factor to monitor in fixed income strategy.
The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness.3