Adam Bulkin

The big themes in markets this year were rising inflation and interest rates. How did you respond in your allocations?

We allocated to low-duration global bond funds on the basis that performance relative to global bond benchmarks would be superior should yields rise.

We invested in physical gold, as we assumed that low real yields (as inflation rose) would drive an increase in the price of bullion. Unfortunately, this asset has not generated positive absolute performance, driven by the extreme strength of the US dollar. However, relative to global bonds (the asset class for which we substituted gold), this was still a positive allocation.

Finally, we allocated to a listed real asset fund that invests in renewable energy, infrastructure and specialist property assets. Many of these assets’ revenues are inflation-linked and should benefit from the increase in inflation.

How have some of the major geopolitical events we’ve seen this year influenced your decision making?

This has been an extremely difficult time for the people affected by the war in Ukraine and we extend our sympathies to all those who have suffered in the conflict. It has been difficult to predict the consequent effects of the war and other geopolitical events on asset class returns. Nevertheless, we have attempted to factor these events into our decision-making, along with the other factors that determine our tactical asset allocation.

In what ways have markets surprised you this year?

While we anticipated an increase in inflation and rates, we have been surprised by the pace and extent of inflationary forces and the extent to which they have forced the aggressive monetary policies of central banks, and thus the resultant selloff of equities and bonds.

We have also been surprised by the extent of the underperformance in the growth style. Furthermore, we did not anticipate the degree of Chinese regulatory interference that has been brought to bear on many technology-focused companies, and the selloff that this and other factors caused.

Russia’s invasion of Ukraine, and the consequences thereof, particularly with respect to Russian-listed assets, was definitely a negative surprise.

How did the lessons of 2020 and 2021 help you in 2022?

The lessons of 2020 and 2021 strengthened our resolve to remain disciplined, adhere to our process and avoid capitulation.

Which asset allocation questions have been most hotly debated this year in your team?

Firstly, at what stage do we begin to incrementally add to risk assets? And do they sufficiently factor in the macroeconomic and fundamental inputs to justify increasing exposure to equities and other growth-focused assets?

Secondly, how do we balance the patent value on offer in South African assets, both equities and bonds, with the negative sentiment attached to emerging markets in general and South Africa in particular, as well as the increased opportunities to invest offshore, given the change in regulation around offshore markets?

What decisions have you made this year that have had the most impact on your portfolios?

Those relating to allocations to domestic bonds, given the high real yield on offer, and the decision to increase offshore exposure at certain junctures.

Do you believe that the investment landscape for South African investors is more or less attractive than at the end of 2021?

On a medium-term view, the investment landscape for domestic equities and bonds looks promising. Both asset classes are cheap relative to their history, other emerging markets and developed markets. There may be more volatility and even further selloffs in these assets, but over the next few years they should generate high real returns.

What are the most interesting conversations you have had with asset managers this year?

One was with two global macro-strategists about oil producers and oil supply. It opened my eyes to the complex geopolitical dynamics of various countries, including the US, Saudi Arabia and Iran, in relation to oil production and helped us form a view early on that oil prices would remain elevated for some time.