Nadine van Taak

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

We anticipated that global growth could disappoint and this, higher inflation, would put traditional growth strategies under pressure, while value could potentially outperform. We recommended a rotation into undervalued segments of the market, as well as exposure to more defensive asset classes. We were looking for exposure to companies that were expected to grow earnings despite a weak global economy. That said, the stickiness of global inflation was higher than anticipated, which resulted in a much higher volatility. Given the dramatic selloff in markets, much of our positioning was to ensure the correct mix of risk assets with defensiveness to ensure the target risk profile didn’t drift during the heightened volatility.

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

It has been a year of material geopolitical events, which are very difficult to forecast or identify. However, this macro divergence across the globe has caused volatility to spike, which we believe will be the case for the foreseeable future. This was the major consideration in all decisions over the past year and will continue to be an important consideration for the future.

In what ways have markets surprised you this year?

Markets surprised us in two ways this year. Firstly, the breakdown in correlations for traditional asset classes took us all by surprise, where bonds provided no defensiveness as equities markets sold off. The other way the market surprised us was how traditional low-beta strategies behaved in line with high beta. Here, we are specifically referring to a quality strategy, which has historically resulted in lower drawdowns than the market. This was not the case in the beginning of 2022.

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

The oldest lesson in the book was yet again the winning strategy – make sure you are diversified across asset classes and strategies. When markets are moving as fast and are as volatile as at present, it is virtually impossible to play catch-up. Therefore, building a well-diversified portfolio is highly beneficial.

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

The topic most debated is the increased offshore allowance given the change in Regulation 28 earlier this year – not only the asset allocation decision but also how we better assess our managers’ capability to manage funds offshore and whether they have the capability to do so. We have also seen that the change in regulation is resulting in a much wider opportunity set, which will result in a wider range of outcomes, especially in high equity strategies.

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

The inclusion of selected value strategies in portfolios despite not seeing the catalyst for value to outperform. This has contributed handsomely to investors.

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

We believe the landscape for South Africa has become more attractive than at the end of 2021. Very small progress is being made on some of the local challenges we are facing. Local asset classes are also looking more attractive than a year ago, given the more attractive valuations.

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

We had a few interesting meetings this year, covering a range of topics. First, it was fascinating to see how managers’ appetite for risk differed for the same geopolitical event, and how they accounted for this in portfolios. Second, the responses from managers in times of performance strain led to very interesting discussions, where we have had open admittance of errors all the way to the performance being par for the course. Lastly, it was encouraging to see how tactical some managers in the unconstrained mandates have been since the onset of the year. We see this as a positive for investors.