One of the most important lessons 2020 has taught us is that diversification remains an investors best defense against various market cycles. In this Market Matters Podcast Stephen Brierley, Head of Retail at Old Mutual Multi-Managers discusses the power of diversification by selecting the right mix of securities, asset classes, regions and fund managers to match the profile and goals of each investor. As the future is inherently uncertain, diversification means not taking a bet on a single outcome, but rather preparing for the fact that things can turn out differently to how we might imagine. For more information visit www.ommultimanagers.co.za
One of the most important lessons 2020 has taught us is that diversification remains an investors best defense against various market cycles. In this Market Matters Podcast Stephen Brierley, Head of Retail at Old Mutual Multi-Managers discusses the power of diversification by selecting the right mix of securities, asset classes, regions and fund managers to match the profile and goals of each investor. As the future is inherently uncertain, diversification means not taking a bet on a single outcome, but rather preparing for the fact that things can turn out differently to how we might imagine. For more information visit www.ommultimanagers.co.za
Ian Fraser 00:01
This year is definitely one for the record books. 2020 has indeed been a turbulent time on many fronts, given Brexit, the COVID-19 pandemic, and the US elections, to name a few. As we approach the end of a year marked with many challenges and uncertainties, there might be a widespread reluctance to make firm plans for 2021.
In this Market Matters podcast series, we explore the most prominent economic themes with investment analysts from Old Mutual Multi-Managers. They help us make sense of the equity, property, and fixed interest markets, and also share insights on how diversification could be the key to survive next year and beyond.
Ian Fraser 00:43
Let's talk to Stephen Brierley now, who is the Head of Retail Business Development and Marketing for Multi-Managers. Stephen, great to have you on the podcast today. Welcome. And first of all, to paint a picture of what you do and how you go about doing it.
Stephen Brierley 01:01
Thanks, Ian. Well, myself, I spend a lot of time in front of our clients and our financial advisers, just kind of educating them on how we manage their money, their money and their clients' money. I think it's as simple as that. It's quite a complicated backend, we have an investment team, which obviously manages the money for the clients and makes decisions in terms of where the money must be allocated.
But I, you know, I stand in front of them. And I really tell the story around what it is we're doing. For the investment business, really what we are doing, you know, is something called multi-management. I'm not sure if it's a concept that's well known to the man on the street or that sort of investor. But it really is about spreading your money across a number of external fund managers, both in South Africa, globally, and in different asset classes. And by asset classes, I mean, you know, property, equity, bonds, cash, both locally and globally, all right.
So, you know, investment team makes decisions around where that capital should be allocated in terms of the different asset classes, which are likely to give you the best returns over a number of years. And then also within those different asset classes, really to say:
I use the word appropriate, because I think people generally get quite carried away by looking at short-term performance of managers out there and saying, oh, this guy's done really well for the last three months or six months, I'm going to give him my money. The same with brand, people look at brand and they say, regardless of the fund manager or the fund, I want to go with him because I recognise his brand.
And I think, you know, we look at things differently. You know, we identify managers that have been around for a long time and do specific things that suit the way that we manage money. We spend a lot of time in front of those managers, you know, kicking the tires, chatting to their investment teams, chatting to the Chief Investment Officers, you know, about how it is they do things and then make informed decisions on what's happening in that business, rather than what are we seeing on a fact sheet. Or, what are we hearing from our friends around the braai? And I think that's the power that comes behind our business and what multi-management is all about.
Ian Fraser 03:18
Okay, I want to tackle this year, before we go on, because I do want to get into the nitty gritty of exactly how if I had a lump sum of money, you would manage it. But I just want to backtrack to January this year. This is very much the focus at the moment, people are worried about what's happening in any sort of market, whether it be equities, whether it be you know, property, etc. etc.
A lot of people, they're shy. They're shy to invest their money or put it anywhere because of what's been going on over the last few months. So, let's talk about that. First of all, how have you dealt with that? From an investment point of view.
Stephen Brierley 03:54
I think the way we manage money has always been the same throughout. So, what we do is rather than take a decision on a particular asset class only, we do what's called diversification. So, we take the client's money, we're invested in a fund, which has an allocation of his capital to a number of asset classes, all right. But we don't want to take huge decisions on a particular asset class. So, we kind of spread that risk across the number of asset classes, both locally and globally, all right.
So, let's use SAProperty as a fantastic example for the way we manage money. So, five years ago, SAProperty was the darling of the South African market. I mean, it was giving you phenomenal returns five years, ten years ago. So, you know, what a lot of investors may have done is they might have piled into South African property. So, they said, you know what, I want 30 or 40% of my portfolio to be in SAProperty because it's been giving me 12 or 15% returns for the last five years. That's something that we don't do. We look at the underlying fundamentals to the market:
And the short answer to that is "no". SAProperty is a very concentrated industry and very small in terms of what you can invest in, all right. So, we make those decisions on behalf of clients. So, you know, I think the mistake people have made in the past is really taking a punt on different asset classes. That's not something we do. We remain diversified and by diversified, I mean, we - I got told not to use clichés, but it means not having all your eggs in one basket.
What's happened now is, you know, with the lockdowns and with what's happening in the economy, people are starting to think well, maybe because SA Equity has underperformed by so much, I should actually just pile in because I need to catch up, because I've lost so much. We're saying don't do that. Stay invested in multi-asset classes, in a number of asset classes locally and globally.
So, we haven't changed our stripes at all. We're really going into January, and now the way we are positioned to the different markets, and the fund managers, actually hasn't changed much at all. Because we know what happened in March and April wasn't something that anybody could have seen or foretold. It really is a, what we call a black swan event where you can't prepare for it. So, we actually haven't done anything differently.
The fact is, you know, our business has been going for some 20 plus years, we've got people in our investment team who have got 40 years of experience in the markets. And although they haven't seen something exactly like this, they have seen events like that which have triggered fear and anxiety. And the way to get through them is not to overreact, you know. It's to make informed decisions. And that's something you get from our business, you know, old hats. A process that's in place to kind of manage this sort of environment and again, that diversification across different managers and across different asset classes is kind of key to giving you a more consistent return in your investment.
Ian Fraser 07:04
Well, I mean, I'm just sitting here thinking about this, because in fact, this is a perfect opportunity to explain why the funds that you invest in are good and solid, because I mean, this is almost an advertisement for what you do, this black swan event that has happened. Because people can now look back over the last year and go, okay, okay, I get where you're coming from, this is something that was unexpected, it was dramatic, it was crazy. No one expected it, and you can turn them around and go, well, look, there are my figures. That's what happened.
Stephen Brierley 07:34
Absolutely. I think, because the market's sell off has been so extreme in some asset classes, you know, everybody has struggled. So, you know, as a South African investor, we are kind of forced by regulation to invest in our own asset classes, more so than global asset classes, for certain reasons. I mean, that's the same across, you know, the whole of the industry. But it's how much you've been invested in those.
Because we've got an experienced team, we kind of manage that asset allocation to say, going into this environment, let's say SA Equity, yes, it needs to be a big part of your portfolio, but we're a little bit worried about it, okay. We've been worried about SA Equity for a while, we know what the SA economy's been doing, what's happening in terms of growth, and things like that. So, let's take a little bit of money off the table. Bonds are looking fantastic, so let's give a little bit more to bonds. Let's have a lot offshore, alright.
So, it's about managing your clients' expectations and managing the asset allocation in terms of what it's likely to deliver, you know, over the long term. And you've got to keep in mind that investing is about the long term. You know, what's happened now is a very, very short period of time - yes, the selloff was unbelievable - but if I tell you now SA Equity is actually back to levels it was when the selloff happened, would you be surprised?
Ian Fraser 08:56
No, I wouldn't, actually.
Stephen Brierley 09:00
The markets are up phenomenally well. And, you know, we try to help investors by being allocated across a number of asset classes, to take out a lot of that, you know, the very, very poor stuff, you know, when the returns are really, really poor, you know. So, have some good in the in the portfolios, there'll be some point in the portfolios, but you want to really create that balance between the different asset classes.
Ian Fraser 09:25
Okay, let's get back to basics here. Because I always like to strip it down to very plain, simple language and ask you: If I have a chunk of change, and I would like to invest it, I am able to do so. I approached Stephen or his team, and I say, "Okay, here's my money. What are we going to do with it? How do we go about doing this?"
Stephen Brierley 09:45
Well, firstly, I'd be obliged to persuade you to deal with a financial adviser because there's obviously tax implications and, you know, in terms of where you want to where you want to be and how you want your money to grow. But let's say you were a financial adviser, and you came to me and you said "I've got a chunk of my client's money. And I want to invest it right. " I would firstly say: "Where are your clients in their lifestyle?" Because we do something called lifestyle financial planning, not in the funds, but as a business, to say, right:
But let's say you're a 30-year-old guy, you've got 5 million Rand and you want to invest it for the next 15 years, you want to take maximum risk, and you don't have to have all of your money in South Africa. So, you're not investing in a retirement type product. We have got funds that we can put that in, put that money in for you, we've also got other funds that if you're a retired investor, and you don't want to sacrifice a lot, you just want to earn a inflation plus 2 or 3% return, then we've got that sort of product for you.
Those products are all managed exactly the same. So, we follow the same asset allocation process, right. We invest them with the same managers, we just have a different risk profile for those different funds that we manage for clients.
Ian Fraser 11:07
Got you, got you.
Stephen Brierley 11:08
What we do, which is quite different from our peers in the asset management industry, is we're centred around achieving real returns. Real returns just means beating inflation. Because inflation in South Africa, well, across the globe, is what you eat, right? It's how you pay for things, okay? So, if we can give you inflation plus returns in your investment, you know, then you'll be able to eat and go on those overseas trips, and buy the car, etc. etc.
So, our whole process, our whole asset allocation, manager selection, the whole way we do things is centred around trying to achieve those inflation plus returns. So, when we make decisions, it's always with that as the centre of our universe.
Ian Fraser 11:52
Stephen, I'd like to touch on the local versus the global internationals sort of investments, because I know I've read articles, a lot of articles from financial advisers, people who are in the know and are in the public eye who have cautioned against investing locally. You know, doomsday scenarios. As somebody who's not in the financial markets myself, I read these articles, and it kind of makes me nervous, because, you know, I'm reading the article, and I'm understanding what they're saying.
But it does seem as though there are opportunities here in South Africa. But now, I'm being advised against that. So, let's talk about that split of portfolio. I really want to go there, because it's an important question to understand before I invest my money.
Stephen Brierley 12:35
So, as an investor, it would obviously depend on what sort of product you would invest in. So, if you are a retired investor, and you have to - you're investing in a retirement annuity, you are, unfortunately, only able to invest 30% of your money offshore. Then you have to work with your local assets. And you've got to select the best local assets to try achieve those objectives.
Ian Fraser 12:59
Right.
Stephen Brierley 12:59
But let's say you have none of those restrictions. You would probably think, let me just take all that money offshore and be done with South Africa, but then you would be missing out in an incredible opportunity in our fixed income markets at the moment. So, I don't know if you follow the bond market. Basically, what the bond market is giving you at the moment is a return of probably 9 or 10%. And you probably think to yourself, that's not really... I want 15 or 20%. But just cast your mind back to five years ago when SAProperty was giving you 50%. And now over 10 years, it's actually giving you negative returns over 10 years. So, maybe just dampen your return expectations.
So, the bond market is giving you 10%. Inflation in South Africa, which is perhaps not all our inflation, but the official statistics are 3 or 4%. That's a real return of 6%. In a market, yes, that does have risks. But we believe a lot of that risk is already priced into the market. So, would you want to take all your money offshore and miss out on a very good quality, more stable return in the bond market? So, that's what we're saying. Just remember that in South Africa, there are certain asset classes that are still giving you good returns.
The problem with taking all your money offshore as well, is when do you take it over? It that when the Rand's weak, when the Rand's expensive? You're taking it overseas at the moment now, when, you know, America has been running for the last 10 years, and those markets are starting to get very expensive. So, you're going to go into an American market that's very expensive. And you might run the risk that in the next couple of years, it sells off. So, you might as well have been better selling with some of your money in the South African fixed income market and getting that inflation plus 6% return.
You're also moving from a South African equity market that has been very weak for the last five years and is showing some good value. Yes, we understand that part of the market is linked to the SA economy in terms of their banks and your Foschini's, and those sort of things, your food companies. But there's also a part of the SA Equity market like Naspers, Prosus, and Richemont that isn't linked to the SA economy. Do you want to miss out on those cheaper, you know, the possibility of those companies generating good returns, and moving into a global equity market, which is predominantly America-based, where things are looking a little bit more expensive?
So, therein lies the magic of diversification. We're not saying keep everything in South Africa, we're saying keep some in South Africa, you know what I mean? If you're a more aggressive investor, yes, have more in global equity, that's fine, we understand that. And that's why we've got products for that. Because you can afford that risk, you've got a long time in the market, right? But if you're a retired investor, would you really say to them, if they're 60 or 70 years old, take all your money into global equity and run the risk of that market selling off incredibly, and losing a lot of money, and then the currency works against you. And then you're sitting there going, why didn't I just keep my money, some of my money in South Africa, where bonds are doing quite well, where I've got the chance of SA Equity doing quite well. And I think therein lies the kind of magic of diversifying.
Ian Fraser 16:13
It's what your appetite for risk is, isn't it? I mean, where you are in your life, you've said it already, wherever you are in the stage of your life, a 30-year-old versus a 60-year-old, etc. And I suppose, you know, you do this day in and day out, so financial advisers, etc. would be able to kind of look at that risk assessment and look at your age, etc. and then roll out a suggested portfolio for you.
Stephen Brierley 16:34
Absolutely, ja.
Ian Fraser 16:36
If somebody wants to get the ball rolling, this is really a call to action for somebody to be able to get in touch and find out more about what this process might entail, do that lifestyle audit, etc. Please talk us through the process now from a very basic standpoint:
Stephen Brierley 16:53
Okay, so, our business - Old Mutual Multi-Managers - sits in with a business called Old Mutual Wealth, which is a wealth business, you know, much like Near Group or much like Investec. So, we deal with clients, we deal with financial advisers, okay. So, the financial adviser would obviously look up Old Mutual Wealth, and would approach the group to become a wealth partner or to invest in the business or, you know, we offer our funds through that wealth business, we also offer our funds through our unit trust business. You would have heard of Old Mutual Unit Trusts.
So, if you're an investor, who doesn't necessarily want to deal with a financial adviser, but wants to invest in our funds directly, you would go through the Old Mutual Unit Trust business, you would be able to tap into our funds over there. But generally, we like to deal with financial advisers, all right, because obviously, you know, for us, the financial adviser can look at your whole lifestyle: where you are in your lifestyle, what your risk is, where your other investments are. Because not everybody puts all their money with one fund manager or one business, but the financial adviser can then understand what your risks are across your whole portfolio, rather than just a portion of your portfolio. So, I think that would be the first point.
If you do want to get in touch with us directly as Old Mutual Multi-Managers, obviously you can do so through our website, or contact me directly, or, you know, any of the team to get the ball rolling.
Ian Fraser 18:15
That's a really good overview. I have to be honest, starting out this conversation to now, I understand a little bit better as to what to do and how it all works.
Final point: South Africans are notoriously bad at investing; we love to spend our money on flashy cars and flashy houses. And I mean, really, to that point, is there a sales opportunity that you can maybe talk about for investing, as opposed to, you know, spending that cash straight away? Why would you do that?
Stephen Brierley 18:44
I've made mention of lifestyle financial planning, so something that Old Mutual Wealth practices in terms of sitting with clients and figuring out what it is they need. And it ties in so nicely to how we manage money because we do it through inflation plus returns. So, you can still get your inflation plus returns and have a little bit on the top to afford that car or afford that overseas trip.
So, because of the way we manage money, you know, and the way the plan is put around the way we manage money, we always factor in those little joyful things that you want to have in your life, like cars and overseas trips and things like that. So, the wealth planning process, and the way that Old Mutual Multi-Managers manage money and targeting inflation, really factors in all those small things that you want on the top, and not just living a dull and boring life where you live from month to month.
Ian Fraser 19:36
Got you. Stephen Brierly, the Head of Retail Business Development and Marketing for Multi-Managers at Old Mutual. Thank you so much for your time. Insightful chat, thank you.
Stephen Brierley 19:45
Thanks, Ian. Good to chat.
Ian Fraser 19:50
Old Mutual Multi-Managers are a specialist investment boutique within the Old Mutual Group, South Africa's largest and most established financial services company. They offer affordable investments that blend together the best of South African and offshore asset managers. Old Mutual Multi-Managers is a division of Old Mutual Life Assurance Company (South Africa) Limited, a licensed financial services provider and life insurer.