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The big debate raging within investment markets right now is whether private investors will be rewarded or punished after last month’s equities buying spree that was the most aggressive since 2014. In the latest update of the monthly Corion Report, David Bacher explains why shares ran so hard in July and offers some insights into the results of Amateurs v Pros contests of the past. He also names a low-profile asset manager who he reckons deserves recognition after his consistently applied process delivered the goods.
On July being a major rebound in global assets
What a difference a month can make. The US gained about 9% and that’s the biggest monthly return for almost two years, while Nasdaq rallied even more. It’s astonishing to note that the Nasdaq index – despite all the things we mentioned last month and the fears and the rumblings and concerns – is now 20% higher than its low. Talk about a bull with fangs! July was certainly a massive rebound in global assets and particularly risk assets. Last month, we pointed out the fact that over the long term risk assets go up and to be underweight risk assets, you probably need a bit of argument then to be overweight risk assets. But having said that, the economy is slowing down, inflation is still a worry and valuations are not cheap. So, with those headwinds; particularly after the rebound we had last month, we wouldn’t be suggesting to our clients to go overweight. I think there’s more volatility going forward and potentially the best thing is to stay a bit cautious and not be caught in a bear market rally.
On headwinds that corporates and investors still have to face
I saw some research, and evidence that show generally retail investors and people in the street’s long term returns are much less than the average benchmarks or institutional returns. Generally there is fear and greed in investments and when you go to a braai and you listen to your friend talk about how he bought a share that went up 10%, 15%; there’s regret. I’m always cautious of following the trend and retail investors getting in before institutional investors. So, the answer to your question is no, that doesn’t surprise me. Rally’s lead to retail flows and unfortunately selloffs lead to retail sales. We are still cautious because if you look at one of the reasons why there was a rally; US second quarter corporate results came out and they were stronger than expected. But you’ve got to realise that quarterly reports are backward looking and when you’re buying an asset and you’re buying a share, you are buying the future profits of that company. The effect of high interest rates and high inflation really hasn’t been felt yet. So, those are significant headwinds that corporates and investors still have to face.
On South Africa lagging behind emerging international markets
Correct, and if you convert that in terms of dollars, we were up 1%. So, obviously the currency was an important factor where the US dollar continues to be the safe haven and appreciating gains. But the other point is, our market has a significant resource weighting. Commodity prices on the whole were a little bit softer last month. Our resources index was flat. So, despite global markets being up 19%, when you’ve got a significant portion of your equity market being resource basic materials heavy, well, that answers why we like international markets.
On capitulation in the markets
If we were on the clock to last month this time, there was some element of capitulation. You had not only equity markets off to one of the worst parts of the year but you also had bond markets which you buy for stability and for decorrelation that was off to its worse start in many, many years. So, there was some element of capitulation but as we said earlier, the market’s up 10% from then, and the world looks a little bit rosier.
On a South African equities manager who’s done well over the past few years
Corion believes investing is not a fast fashion. It’s not about constantly changing and chopping. It’s about sticking to your process and making sure you follow what is going to work over the long term. A name that I think sticks to those principles, is ClucasGray, led by a manager called Andrew Vintcent. We have had exposure to ClucasGray for some time and it hasn’t been a one way bet. COVID caught him by surprise and his portfolios really did suffer but through that course and that pain he presented to us why valuations are so compelling, stuck to his guns and certainly didn’t panic. And over the next three years, or two and a half years, has certainly rewarded our clients for his investment view. Not a common name, but I think a small manager who sticks to his process, who’s got a good track record and something to watch out for people out there in the street.
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