Rethinking returns and saving for our future
Following two years of significant financial uncertainty, investors are increasingly focusing on ensuring that they have enough savings to ride out financial storms and to provide for their future – and that they invest for impact to ensure there is a future to save for.
“As investors increasingly question the investment practices of the past and re-evaluate the concept of meaningful contribution, we believe in rethinking returns and investing for impact,” says Marthinus van der Nest, head of Amplify Investment Partners.
“At a time when there is so much economic pressure, investment considerations are increasingly including environmental, social and other societal issues and how they can contribute.”
This requires, first and foremost, the ability to save and to increase savings, which is top of mind currently during savings month, especially as the pandemic years have illustrated how crucial it is to ensure our own financial stability in case of hard shocks.
They also illustrated the importance of riding the storm when it comes to investment.
Amplify’s strong performance across its unit trusts and hedge funds over the past two years highlights the importance of riding the storm, as the recovery of the JSE and major global indices from the market crash at the start of the pandemic were relatively swift and unpredictable.
Markets have recently tended to react quickly compared to past cycles, leading to rapid dips and recoveries and ever-increasing levels of volatility, which are difficult to manage from an investment perspective. But even if the cyclical recovery is slow, recent experience provides evidence of the importance of remaining true to your long term savings goals. Panicking and selling into a dip is almost inevitably counterproductive.
“We continue to experience uncertainty and volatility, and this does make investors concerned, but agile asset managers have proven they can be trusted to navigate storms,” says van der Nest.
“Keeping a cool head is the cornerstone of investing, and agile and responsive fund managers are better able than individual investors to keep a cool head as they have the experience and the tools to protect on the downside and continue to find opportunities.”
These are often presented in mispriced assets not available to larger managers, and investors are increasingly relying on boutique managers that have a relatively large investable universe to find and make use of upside opportunities.
Agile small managers have proved to be relatively better able to consistently beat the market during extreme swings and when there is a high level of uncertainty. “Active fund management is an important investment strategy in uncertain times, and our managers are using an asymmetric returns mindset to manage the downside while capturing as much of the upside as possible,” says van der Nest.
Diversification is also increasingly important due to volatility and uncertainty, especially given the higher level of risk locally and internationally. For most savers, multi-asset unit trusts are accessible as they are relatively low cost and diversified as they include equities, bonds and money market instruments. Selections of the type of unit trust need to be based on personal goals, relative risk appetite and cost.
Investors should, if possible, also look at hedge funds, which can make use of short-selling, leveraging, and derivatives to provide an additional source of diversification and improve the overall risk profile of a portfolio.
Low correlations to equity and bonds mean hedge funds in a portfolio provide a diversification benefit and a strong positive return highly uncorrelated to traditional multi asset categories, especially when there is volatility.
The blended five-year performance of a basket of Amplify’s hedge funds reflects significant outperformance of equity and bond indices and inflation, emphasising the benefits of including hedge funds in a broader investment portfolio.
While savings are by their nature focused on growing a nest egg and generating financial returns for the future, investors and fund managers like Amplify are increasingly aware of the need to contribute to protecting that future, to leave a legacy and to make a meaningful impact on communities and the environment.
While environmental, social and governance (ESG) issues are increasingly playing into the investment decisions of fund managers, and evident in the investment requirements of their clients, for Amplify, these issues are integral to its culture and central to its decision-making and raison d’être.
“We help our clients save and prepare for the future and want to play a role to ensure the future is worth saving for. For us, saving for the future means leaving a better world for future generations,” van der Nest says. This is embodied in Amplify’s support for conservation, job creation and youth education projects, centred around the Kruger National Park and surrounding communities.
Increasing savings and supporting these initiatives are not mutually exclusive. “We believe that when you know you are saving for a goal or purpose, you will be reluctant to sell out and will have a more level-headed and longer-term approach to your investment,” Van der Nest says. Additionally, there is increasing evidence that higher compliance with ESG goals results in companies being more investible as in doing so, they are ensuring their own future sustainability.
Combining its investment objectives with very specific purposes has created a future-driven mindset at Amplify and helped it consistently outperform its peers since its launch in September 2018 and grow assets under management by over 275%.
This was achieved during a time when the consistency of performance of asset managers has been continually tested, through the pandemic and hard lockdowns, war in the Ukraine, supply side shocks, rising inflation and central banks reacting to these challenges by raising interest rates.
Locally, power cuts, fuel and food price hikes, unrest and natural disasters have all weighed heavily on investment decisions and performance and added impetus to the already challenging external forces that have come into play. At the same time, commodity price increases, earnings growth on the back of recovery from the pandemic and low valuations of quality stocks have opened up specific opportunities in local equities which adept managers have been able to exploit.
In this environment, savings and investment goals should be focused on taking advantage of the upside opportunities while protecting on the downside, and this requires active management. Astute financial advisers have been driven to look at boutique managers, such as those Amplify employs across its funds, to find additional places from which to generate returns and to provide uncorrelated returns from portfolios that are continually diversified.
Amplify’s fund managers use various strategies, including active asset allocation, hedging, bonds, structured notes and cash alternatives to beat the market, but with less volatility than the market.
Industry-beating track records and significant inflows into Amplify’s funds over the past two years illustrate increasing demand for independent managers that actively trade in volatile markets and produce returns that reflect a consistent investment process and style.
Investors have recognised its performance, with the significant flow of funds into its range of independently-managed unit trusts and hedge funds. The industry has too, with the Amplify SCI Wealth Protector Fund, managed by Truffle Asset Management, winning first place in the 2021 Raging Bull Awards on straight performance in the multi-asset low equity category and first place in the inaugural 2021 Citywire South Africa Awards for best conservative fund. DM/BM
Marthinus van der Nest, Head of Amplify Investment Partners.
Amplify Investment Partners (Pty) Ltd is a wholly-owned subsidiary of Sanlam Investment Holdings and an authorised Financial Services Provider. Sanlam Collective Investments (RF) (Pty) Ltd is a registered Manager in terms of the Collective Investment Schemes in Securities. A schedule of fees can be obtained from the Manager.
Maximum fund charges include (incl. VAT): Manager initial fee (max.): 0.00; Manager annual fee (max.): 0.87%; Total Expense Ratio (TER): 1.07%. The Manager retains full legal responsibility of the third-party portfolio. The registered name of the fund is Amplify Sanlam Collective Investments Wealth Protector Fund.