BNC#8: Cy Jacobs shoots from the hip – War, markets, and the bold bets shaping your money next

BNC#8 keynote speaker Cy Jacobs delivered a no-notes, high-conviction masterclass on navigating chaos – from geopolitical shocks to shifting market cycles. Backing South African commodities, questioning Europe, and eyeing fresh opportunity in beaten-down US tech, Jacobs reveals how smart money reads fear, predicts turning points, and positions ahead of the next global move..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..Watch here:.Listen here:.Edited transcript of the keynote speech.00:40Thank you all for coming out to listen to me and a special thanks to Alec for having me here once again. This talk is going to be very different to Piet's, so I didn't come with any lessons on history. In fact, I came with no notes whatsoever. I'm just going to shoot from the hip and tell you all how I'm feeling about markets, how 36ONE does things, and what we think about the current environment and how we'd like to invest from this point forward. So I think to put that all in context, 01:09First of all, we need to go back and explain a little bit about 36one, how it came about, because it gives us, or gives all of you, a sense of how we think about investments. So myself and my partner, we were small shareholders in a little stockbroking firm that was sold to Investec in 1999. We joined on a five and a half year deal. And after probably three or four months, we decided exactly what we didn't want to do, is be part of a big... 01:39organisation with multi layers, many management meetings, et cetera. And we decided that as soon as our five year restraints were over, we were going to do something very different. We're going to break away, create a small group of very sharp individuals who just love to manage money. And that's what we did. So the end of 2004, we broke away some 20, almost 22 years ago, and we started 36one. 02:09asset management. It's very difficult for me to talk on behalf of One Fund because I think it's very important to know we are a multi-fund business today. So we actually have five strategies. Number one, we are one of the two biggest hedge fund managers in the country. That is our most conservative product. I'm going to talk a little bit about that later. Number two, we run balanced money. So balanced money is obviously a combination of cash, bonds, 02:37equity is very much what Piet was kind of alluding to as well, very similar type structured fund, maybe not as value orientated. Number three, we run equity funds in shares, both globally and locally, that's called our general equity funds. Number four, we run specific SA equity funds, that's a portfolio only in SA equities. And number five, we have a global business which runs global equities on a long-only basis. So very difficult for me to talk 03:07exactly on a general strategy because each and every one of these funds is defined differently, has different portfolio objectives, is run by a specific unique team within 36ONE, and all of them in their own right have done exceptionally well. I mean, they've won awards, know Piet says awards aren't important, and pretty much all of them except for global equity. I think one day it'll be very, we'd be very encouraged if we became a competitor on the global stage. 03:37But for now, we're just happy that we've beaten global benchmarks over the last decade, which is quite difficult to do against passive money in global markets. I think what is interesting, and I'm just going to talk from a practical point of view here, is there's been a lot of debate at this conference over the last number of years, is where do we invest our money? Do we stay in the South African market? Do we go global market? We heard what Piet said about interest. 04:06kept your money in South Africa, your interest would be greater now in Rands, than had you taken it offshore. It's interesting, the dynamic of the South African market hasn't been very different to that. If you look over the past five years, it's interesting to note that the global index in dollars has done about 12.5 % per annum, the S &P 13.5 % per annum, the NASDAQ, I think it's 15.5. 04:32I don't have my slides, I've got exact numbers in my head. But interesting enough, the South African market in dollars has done 17.5 % per annum in the last five years. So it's a market that's not really representative of the South African economy. It's really a global market. You know what's listed in South Africa, whether it be Anglo-American, or Richmond, or British American Tobacco, or Naspers, and of course, all our commodity stocks, which have done phenomenally well over the last 18 months. 05:03So I think many, and Magnus, who's maybe not sure if he's sitting in the audience or not this morning, has been obviously a big proponent of moving your money offshore and investing in global markets. The great thing about being a South African and maybe staying in the South African market is actually you've had plenty opportunity, if you've read the cycles correctly, to be invested in the right sectors in the SA market, which has counterbalanced the negative or slow. 05:30domestic economy that we've seen over the last number of years. So what we do at 36ONE is probably quite different to Piet. Yes, we do believe in history and we do study history and we study the 70s when oil price was high and we see what happened to inflation. We try and impute that into what will happen today. What we do do though, is we very much try and predict what the response will be from equity markets. So if you go back in history over the last number of years, 06:00If you look, for example, in March of 2020, we saw COVID coming from early January of 2020. What did we do? Well, in the hedge funds, we sold down equity, we went short, we protected capital. You know, in our equity funds, we realized which sectors would be more exposed, we moved them around. So we very much are trying to move to predict the cycle to understand exactly what will happen next and to ensure that our portfolios 06:30perform as well as they can throughout all cycles of the market. So a very different approach, I think, to Piet. And um it's not to say that all different approaches don't work. It's nice to have a balance of different approaches, I suppose, with different fund managers to ensure that you get a proper balance of investments and diversification, as you know, even across managers, gives you a much better risk adjusted outcome than going, for example, with one particular manager. 07:00So I think from here, what I'd really like to talk a little bit about is how we seeing the world and where we think you need to be invested. So first of all, we consider ourselves almost, well, not experts, but we try and be in the right geographies at the right time. And then within those geographies, we try and be very much in the correct industries at any one time. And obviously we study various macro factors, we study history. 07:28We study what's happening politically, and through that we try and move the funds around and try and ensure that the funds are as best insulated from what we're seeing in, call it risky environments, risky geographies, whatever is happening in the world. So right now, what do we have? We have a big war underway, and we have to make predictions about that war. We have to say, would this be World War III? 07:55And we've done a lot of research to say, no, this won't be World War III because we don't believe China or Russia has the objective of entering this war. Yes, they may have benefited from what Iran's behaviour and they may be on the side of Iran from a commercial point of view. I mean, I don't know if any of you know, but 90 % of Iran's oil exports go to China and they go to China at a very cheap price because Iran uses that oil to garner very cheap weaponry. 08:25that they can use against the rest of the world. So China was very happy to take that oil because they reliant on oil imports. But I don't think are very happy to enter a war against the US. So having understood this and understanding what you think will happen with this war will give you kind of an understanding of how we need to position. So as of Monday morning, um which was yesterday morning, 08:53We woke up and the market in South Africa was down 10.5%. What did we predict what would happen? We've been watching the declining amount of drones and missiles coming out of Iran over the previous eight to nine days. And for us, we predicted that Iran was really becoming quite desperate, firing what they could at Arab neighbors, not garnering the support that they wanted from the 09:21from the neighbors to effectively put pressure on the US to stop. And so we started predicting that this war actually is going to come to an end far earlier than maybe anticipated. Initially, Trump's saying four to six weeks. And for those of you who stayed up late last night, which I did at two or 2.30 in the morning and watched Trump's speech, he said basically this war is coming to an end sooner than anticipated. And we suddenly saw all this euphemism or this crazy euphoria in oil. 09:50where the one month old contract was trading at $114, suddenly dropped to $86 and a big spark in markets again. So we actually, just before that point in time, we're actually in a position where we were predicting that the markets were feeling rather negative about the war. And we were saying, this is actually going much better than expected. In fact, Trump called it himself, how do you rate this war as how America is doing out of 10? And he said, he writes that a 10:2015. Obviously, he's the kind of personality who always would say that. And I think I'm not looking for people who actually love Trump here. I'm not to say I'm a Trump lover. But I think the US's success here and the fact that finally a president was able to stand up to this terrorist regime and try and make a change in the world to make the world a safer place, I think is going to have a tremendous outcome. 10:49but for the world and actually going forward, I think for investments across the world. And I think there's going to be a lot more, and clapping is going to be a lot more positives coming out of this than negatives. So at times when the market is fearful and we're in the midst of the war, I think it's important to predict that this war won't go on forever. And hopefully we'll come out of this on the other side looking a little bit better. A lot of people think there could be regime change. 11:18We're not at 36ONE a believer of necessarily wanting or not wanting, we would love the regime to change. We don't believe that it is an objective of the US to necessarily do that. We think number one, to make sure the Strait of Hormuz carries on with trade. And those of you who also stayed up all night will know that quite a few ships went through the Straits last night. There were five or six Greek ships. It's very interesting to see some trade starting to resume. 11:46And the other big threat, obviously, of Iran's nuclear capabilities and serious ballistic missiles being put to bed. So where would we invest right now and what's happening of late? Well, before, I think Helen was here a few minutes ago. I don't know if she's left. I used to, oh, yes. We had a great dinner a couple of nights ago. But I think what South Africa is feeling right now 12:16is a whole lot of optimism. We've seen some great changes in South Africa. We had a massive energy crisis that seems to be uh somewhat avoided. Obviously, private sectors played a great role in that. We're starting to see major fix up in transnet. We're seeing a budget that seems to be more realistic and financially disciplined than the past. We're not seeing, since the GNU came into power, we're not seeing any ridiculous regulation being promulgated. Yes, there are some. In fact, we're seeing a 12:46dissolution potentially of NHI. So there are a lot of positives, I think, in South Africa. Obviously, the slowness of the economy concerns us. But I think what we've seen over the last two years since the formation of the GNU is that the South African market actually has done exceptionally well. As you know, markets are a predictor of the future. So I think a large number of investors who saw this happening and who saw a debasement 13:14of the dollar and everyone looking for alternatives outside of the US. And I think that also was a very interesting time in our markets. Before the strike, there was definitely a move to the left. There was a move that China and all its related proxies were becoming stronger. There were transactions in oil underway in one and all other currencies. And the US was definitely in a position where it was slightly losing power to the rest of the world. And I think this Iranian strike 13:44actually changes that and actually shows that the strategic thinking of the US was actually far beyond many of its eastern uh enemies, call them, or east accountant parts, where they became quite energy self-sufficient. They're a net exporter of oil. They develop their own oil. And yes, there are exports and imports, but they are a net exporter, where China has been very reliant on oil. And obviously, 14:13getting oil very cheaply. And I think this whole war has disrupted that in a very big way. And for us, what that really means is that the US is going to come out of this stronger. And over the last one and a half years, if anything, the US market has, besides the AR few stocks, the US market has actually become a little bit weaker. You've seen global tech companies that used to trade on 30 and 40 multiples, almost half the Microsoft's, 14:43Googles, et cetera, that aren't as highly rated as they used to be. And we've seen, I think, significant fears around the dollar weakening resources like gold getting stronger, PGMs, et cetera, which has been very good for South Africa. But I think in some way, people were being frightened by the US dollar potentially weakening further. And I think this action is going to reverse that, what we have seen over the last couple of years. 15:13So where would we invest? Well, we think right now coming out of this wall that the US will manage to keep inflation in check. There will be a temporary blip, obviously, and as inflation goes up because of the cost of oil going up in the short term, obviously our inflationary fears, that is what has actually brought the market down because higher inflation goes, effectively bond yields go up, which is your discount rate. And the higher the discount rate, effectively the lower 15:41forecasted valuations will be of underlying shares, equities, et cetera. What we see with this forming right now is we think it's a very temporary glitch. And you can see by looking at oil futures over the next month, two, three, that in fact, looks like prices are gonna come back down. Trump himself said this would be temporary. So we would generally look to potentially move a lot more money back to America. We have been invested. 16:08very much in the South African story over the last couple of years, but we have seen a significant re-rating in domestic South Africa, particularly in banking shares, particularly in property, South African government bonds, where you were buying bonds at 12 % yields, they're now at 8%, touched 8 % yields. That is a massive increase for a country like South Africa. We haven't seen a move like that for many, many years. And for us, that pretty much 16:38unfortunately kind of its way out over the last 18 months. And we feel that those valuations are, for right now, a little bit complete. Yes, it hasn't been in all sectors of the market. So if we look in the South African retail market, for example, retail shares have been rather poor. And it's not as a result of the economy being so bad, but rather as a result of lack of regulation on imports. So we've got the Temus and the Sheins. 17:06come to this country and really kill a lot of our retailers. And secondly, we've had a lot of spend going into other areas, non-discretionary spend and a lot of online gaming. So one thing I would say to Helen, if she can help and help with anything, I think there's certain regulation required to protect consumer industries uh in South Africa. So. 17:32We're not that positive at the moment on the South African market, on the domestic side, but we know one thing coming out of this war right now is that commodities are in big demand. And I think coming out of this period, they're going to be even more in demand, particularly copper metals that are used in industrial spaces. And we've seen that South Africa, luckily enough, has a lot of raw material commodities. So as a result, we don't see that part of the 18:02of the spectrum doing too badly. We think that's going to do significantly well. So it's not that we're negative on the overall market, but we're just a little bit negative on the domestic side, given very slow growing economy, where we have seen a very big rerating on the fact that bond yields have come down, dividend yields are very high, they've come back down again now. And unfortunately, we're not seeing the follow through on growth. And we also urge the SARB if they could. 18:32to maybe potentially lower interest rates further because this whole outlook of 3 % inflation target, I think is maybe not that appropriate for an African emerging market like ourselves. And we'd like to see more stimulation on the consumer side. Sorry, I'm jumping around a little bit just because I have no notes and I'm just gonna talk as I feel freely. So a lot of people have asked me as well, what do you think of Europe? 19:01Is Europe investable? The more I see around this war, the more negative I get around Europe. Lack of leadership, number one. A very bad experiment on the euro, which is still with us today and doesn't allow individual European economies to adjust as they grow faster or slower relative to others. We've also seen a massive problem with slow... 19:28old industrial businesses in Europe. We know what's happened in, for example, in the auto industry. We've seen how China has actually just taken a massive market share in such a short space of time. And really the Chinese government is good at that. They have incentivised these car manufacturers. They're not necessarily even profit motivated. They're market global market share motivated. And what that has done is obviously put a big dampener on Europe. 19:57on Europe as a region. And we feel that there's no real reason besides a few technology companies or potentially some financial companies to be massively invested in Europe at this time. So our thesis would be more for commodities from South Africa. We like them. We think that the commodities globally are going to remain very much in demand from here. In the US, we think there's some 20:25great anomalies and even great tech companies that are maybe being painted with a very bad AR brush because maybe they're chasing a bit too much AR cap expend. You know, we look, we put on a trade just a couple of weeks ago. had Walmart when it was a big switch in a couple of weeks ago when everyone tried to buy consumer stocks and sell down technology stocks. Those of you who understand how multiples work, PEs, in other words, how many years of earnings 20:53is a company valued at? Well, a couple of weeks ago, just as Walmart released its results, Walmart was trading at a 45 multiple and Amazon at a 20 multiple. Amazon at a 20, Walmart at a 45. And if you look at consensus earnings going forward, Amazon is still growing at a much faster pace, even with all this capex spend than a Walmart would. In fact, Walmart is actually currently lowering its projected. 21:22margins going forward. So I think this war and this whole AI, call it CAPEX frightening spend and worries about private credits around AI and all these various things have resulted in some phenomenal opportunities that we're seeing right now. And I think those are the places you need to look to reinvest, not to be too scared of what's happened. We've seen great companies like Microsoft. 21:50come down from 560 to $390, AI is not gonna get rid of that software. We're not gonna stop using Microsoft Office Tomorrow or Word or Excel. And in fact, very interestingly enough, there was some news out last night that they're starting to use a little bit of Claude, not just OpenAI, because there was a fear that OpenAI was not gonna make it in the world of AI chats. 22:18and too much money was being spent there. And it's interesting to see that Microsoft may be diversifying now away from Open AI and starting to look at a few other players in the AI industry. So I think there's some great opportunities out there. I don't think technology is disappearing anytime soon. And I think looking at the very large players, the Microsofts, the Googles, the Metas, they are very well, very well oiled machines. 22:46that have continual new spaces coming out of their businesses that keep expanding, you know, vertically and horizontally. And I think those are looking very, very interesting as an investment thesis going forward.

BNC#8: Cy Jacobs shoots from the hip – War, markets, and the bold bets shaping your money next

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