Old Mutual Investment Group

Siboniso Nxumalo shares his Q4 quarterly review and a roundup of 2022 market activity

January 24, 2023 Old Mutual Investment Group
Old Mutual Investment Group
Siboniso Nxumalo shares his Q4 quarterly review and a roundup of 2022 market activity
Show Notes Transcript Chapter Markers

Senior Portfolio Manager, Siboniso Nxumalo shares his views on the last quarter of 2022, while also reflecting on the year as a whole and unpacking his portfolio’s positioning and performance.

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Siboniso Nxumalo  00:10

My name is Siboniso Nxumalo, I'm a Portfolio Manager at the Old Mutual Investment Group. This is our quarterly investment review for the fourth quarter of 2022, and we're going to look back at the year 2022. What a year! 2022, we saw the end of Covid, with the world reopening and gradually economies returning to normal. We also saw turmoil in British politics, we saw the shortest serving Prime Minister in Liz Truss, we saw the second shortest Chancellor of the Exchequer in Kwasi Kwarteng, and that was tumultuous for the markets. We saw war in Europe, something we hadn't seen in decades. Russia invaded Ukraine. And a result of that, we saw the return of inflation, especially in the developed world. Inflation rates were higher than they've been in probably four decades. With that then, we saw the fastest pace of interest rate hikes. We're going to talk about that a little bit later, and the consequence of that. 

And with easy money fading, and interest rates going up, we saw bubbles bursting. We saw crypto collapsing, we saw stocks collapsing, we saw NFTs collapsing, and we saw growth stocks, which were mostly tech stocks, actually, they came down quite a lot. In South Africa, we saw the return of loadshedding and sitting in the dark. And then, we also near the end of the year, saw a lot of political uncertainty and noise in South Africa with investigations on the President's affairs as we headed towards the ANC's elective conference. What a year that was. 

Siboniso Nxumalo  01:40

Now, when we look back as an investment team, our job is to grow clients' wealth over the long term. And here at the Old Mutual Investment Group MacroSolutions team, we approach investing in two dimensions, we call them theme and price. And twice a year, the entire team stops whatever they're doing, and they spend time researching what the long-term structural themes that will drive investment markets going forward. 

There are two things that I'm gonna mention: global wave down and rotation are the themes that we're going to pay attention to. So, in 2022, we saw an inflation and a growth shock. So, we saw lots of inflation, we saw growth starting to slow. We believe in 2023, according to our research, we're gonna see growth continues to slow in global markets. And we're gonna see company earnings and company profitability come under immense pressure. We always see this when interest rates rise at the pace that they have risen over the last year. 

Siboniso Nxumalo  02:40

And so therefore, how do you invest in that environment? Well, we see opportunities in global bonds over global equities. That already indicates caution. We are seeing defensively orientated shares that are stable and able to weather tough times over cyclical shares. So therefore, we've taken a cautious stance in terms of our portfolios positioned a lot more defensively than we were in 2022. We also see a rotation, what does the rotation mean? Well, peak inflation, we see inflation peaking, we see interest rates peaking, and therefore we think the US dollar, which has driven quite a lot of markets over the last few years, we see that peaking too. And we think that with that we're going to see a weaker dollar, and therefore the opportunities in a weaker dollar are going to lie in what we call value shares or the cheaper shares. And again, we've positioned our portfolios in that sense. We've got high tilt towards South Africa, we're finding great opportunities in South Africa still, and obviously in the more value orientated rather than growth orientated shares. 

Siboniso Nxumalo  03:42

Now, let's talk about investment performance. Over last year, we saw returns across the broad asset class as rather low, South African equities and South African bonds delivered similar returns of just over 4%, while cash returned little over 5%. Global assets with a big lose in the year, we saw global equities down over 12% and global bonds down 11% lower in South African rand terms. The Rand was 6.6% weaker against the dollar, meaning that returns were worse in US dollar terms. So, last year was a bad year to go offshore because of this investment performance. Now, within South African equities we saw that diversified and industrial metal miners, British American Tobacco, which is a defensive share, and banks performing well. We own lots of banks, we own lots of British American Tobacco, while we saw MTN losing nearly a quarter of its value. Volatility prevailed last year. Naspers and Prosus recovered from being down nearly 50% in May to end the year 5% higher on a combined basis. On the other hand, Sasol was nearly 70% higher in the second quarter driven by higher oil prices, but ended the year just shy of 9%. 

And therefore, given all this volatility, how did we perform? If we look at our funds over the last quarter, Old Mutual Moderate Balanced Fund, Old Mutual Gold Fund, and Old Mutual Quoted Property Fund, were top quartile, pleasing returns beating the market and beating the peer group. But we saw Old Mutual Investors Fund also beating the peer group, second quartile performance. But we saw our Balanced Fund, our Flexible Fund, they were third quartile, slightly underperforming the peer group because of their more defensively orientated stance and the tilt towards South Africa. And over the year, we saw Old Mutual Stable Growth and Moderate Balanced Fund, then the first quartile funds, and we saw Investors Fund and the Max Return Funds being second quartile. So, all of those funds, above benchmark, and above peers, pleasing returns. The rest of our funds, we saw them in the third quartile. So, there's work for us to do. 

Siboniso Nxumalo  05:43

2022 was a volatile, tough, and complicated investment market. 2023, global growth will slow, company profitability will slow, the very high recession risk in the US, which is the biggest market in the world. Now, 74% of the time that the US is going into recession, so has South Africa. With that in mind, we have cautiously positioned clients' portfolios in order to preserve and to grow capital over the long term. At the Old Mutual Investment Group, we have a very capable, experienced team that does rigorous research, various asset classes, various markets, and that team, the safe pair of hands that you can trust your capital to, to help you navigate 2023. Thank you. I'll see you after the first quarter. 

Siboniso shares a summary of the events in 2022 that impacted markets
The themes that the MacroSolutions team will pay close attention to in 2023
How do you invest in this environment in 2023? Siboniso explains where they see opportunities and how they have positioned portfolios
A summary of investment performance in 2022
Given all of this volatility, how did Old Mutual funds perform in 2022?
Closing