Marise Bester, investment specialist at Allan Gray

 

 

 

We cannot control, or predict, when the market will move up and down, so trying to perfectly time an entry and exit from the market is a near-impossible task. Similarly, we cannot control the outcome of an election or its impact on the markets or our investments. In the below piece Marise Bester from Allan Gray discusses how to maintain a sense of perspective during uncertain times. 

 

 

Nearly 28 million voters will go to the polls on 29 May to vote for candidates to represent them provincially and nationally in the country’s seventh general election since the start of democracy. What makes this year’s election different is that, just as in 1994, the outcome is difficult to predict.

 

 

Despite the unknowns, Marise Bester, investment specialist at Allan Gray, believes it’s imperative that investors remain focused. “In our view, the year 2024 has above-average political risk,” she asserts. “The uncertainty about the upcoming election is unsettling, but also positive, as it’s a true reflection of a healthy democracy.”

 

 

Lessons from history

 

 

Looking at the performance of the FTSE/JSE All Share Index (ALSI) over the past 30 years, there have only been five years in which the index reported a negative return (1997, 1998, 2002, 2008 and 2018). “None of these years coincided with a general election,” comments Bester. “Markets are cyclical and short-term volatility, which is an inherent feature of achieving real returns, also leads to fluctuating returns with no clear pattern, even during repeat events such as election years.”

 

 

However, she concedes that this is not a typical election cycle. “The outcome of the May election could drastically change many policies that could affect companies in different ways,” she states. “But the same was true in 1994 and the ALSI achieved a return of 23% that year.”

 

 

Despite the market shocks and rebounds, local equities have grown by 13% per annum over the past three decades, underscoring the importance of focusing on the bigger picture.

 

 

She adds that while short-term fluctuations are likely to occur around the election, history suggests that the long-term trajectory of the market is driven by broader economic factors and company fundamentals.

 

 

“History has also taught us that investors who have endured the tough periods and adopted a longer-term view at the most uncomfortable of times tend to be rewarded for their patience.”

 

 

Adopting a balanced approach

 

 

To maintain perspective, investors should focus on what is within their control rather than what is not, contends Bester. “What we can control is how we react both in the run-up to and after the election, although keeping emotions in check is easier said than done,” she says. “This has been illustrated over time by investors switching out of equities into cash during times of uncertainty, often locking in losses.”

 

 

Bester says perspective also brings a deeper understanding of challenges and their underlying causes, which can build resilience and prevent knee-jerk behaviour. Resilience is all about building capacity to withstand difficulties.

 

 

“In an investment context, adopting a resilient investment strategy includes establishing your investment plan and goals, with the help of an independent financial adviser, being clear about what you expect from your chosen investment manager, and aligning your expectations with your chosen funds’ stated objectives, return expectations, time horizon and risk positioning.”

 

 

She adds that knowing that emotions can get the best of us, it may make most sense to outsource asset allocation decisions to a professional investment manager by investing in a diversified, multi-asset class fund, such as a balanced fund.

 

 

“Balanced funds can have exposure to a range of different asset classes including offshore assets, locally listed companies that operate globally, attractively valued SA shares, high-yielding cash and bonds, as well as precious metals,” she explains, adding that Allan Gray portfolio managers manage these assets in the Allan Gray Balanced Fund in a way that prepares for multiple outcomes rather than one single outcome.

 

 

“Consistently implementing our investment approach, which aims to limit the impact of losses while focusing on generating good long-term returns, has allowed us to translate the theoretical benefits of capital protection into reality,” she concludes.

 

 

ENDS