Portfolio Manager, Siboniso Nxumalo, shares his quarterly perspectives unpacking global and local themes as well as investment performance that affected fund positioning.
Siboniso Nxumalo 00:08
Hi, my name is Siboniso Nxumalo, I'm a Portfolio Manager at the Old Mutual Investment Group, MacroSolutions. This is our quarterly investment review, reviewing the investment performance of our funds over the last quarter, but this particular quarter ending on the 31st of December 2021. We are going to look back at the year that was.
2021 was a pleasing year for clients, with our multi-asset and equity funds outperforming their respective benchmarks and ranking in the top two quartiles of their categories. This is the kind of year you want to deliver to clients.
What drove this particular outperformance from our funds? Well, if we look back at equity, high prices create low prices, low prices create high prices. Oil is a case in point here. In 2020, we saw oil prices, especially in March, absolutely crater. There was an abundance of oil. And yet the world was in lockdown, there was no demand. But also, we've seen, especially with ESG, little and declining investment in oil production. The world then recovers. We looked at this as an investment case and we saw an opportunity in energy. Therefore, over the past year, our overweight positions encounters like MTN, with its large Nigerian business, returned 183%. Sasol returned 93%. All supported by the large oil recovery. Our banks’ exposure, which we've spoken about many times, Investec returned 143%, Raubex, 89%, and Transaction Capital 83%. All contributed meaningfully to our returns.
Our underweight position in the Naspers Prosus Group was also a large contributor to client returns. Now, this particular investment call illustrates the advantages of our multifaceted investment approach. Naspers is a market darling and a very sizable position in many portfolios. Market commentators tend to agree that the Naspers Prosus Group offers compelling fundamental bottom up value. That's before you add the discount that the Naspers Prosus Group trades at relative to their stake in the Chinese tech company, Tencent. While we did not materially disagree with the market's view that Tencent is a world class company that should warrant a very high rating given us market opportunity.
However, that famous Albert Einstein adage needs to be mentioned here. "Not everything that can be counted, counts, not everything that counts, can be counted." Therefore, our thematic lens into the world raised concerns about the regulation of tech companies globally. Specifically, in this instance, with regards to China. This means that we have been reducing our stake in the Naspers Prosus Group at higher valuations and deploying that capital in the domestically focused economically sensitive SA Inc companies. This proved to be a highly profitable decision as the draconian regulatory conditions in China took their toll on the Tencent share price, leading to a substantial underperformance in the company from its peaks earlier on in the year.
Let's take an outlook into 2022. What do we even expect in 2022? Looking into 2022, we believe that equity returns will moderate after a blockbuster 2021 as growth has peaked, and valuations are somewhat demanding, especially when it comes to US equity.
Locally, our bonds remain very attractive, and the problems encountered with our fiscus in South Africa and the growth path are well known. While it is always possible that these can deteriorate, our view is that we will see a stabilisation in the South African fiscus and an improvement over the medium-term growth path. This would bode not only well for our bonds, but also for our SA Inc companies. Despite strong returns in 2021, many of these companies continue to trade on attractive valuations. As such, we maintain a meaningful exposure to this area in our investment universe.
We expect a more volatile year ahead for markets as we are past peak vaccine optimism and liquidity while valuations are less attractive. However, we believe investors should still be rewarded for taking on risk and we have positioned our funds accordingly.
Finally, inflation globally has proven to be stickier than many expected. Inflation was always going to bounce back in 2021. But the continued global supply chain issues combined with a robust demand for goods and strong recovering US and Europe meant that prices continues to rise higher and faster than most expected. 2021 was driven by a strong recovery from a low earnings base set in 2020. 2022 is likely to be a year of lower returns and potentially higher volatility as global markets deal with high inflation and central banks tapering.
What does that mean, as I conclude, in simple terms? Money has been abundant and cheap. And that is changing. Money is now going to be expensive as rates go up and less abundant as central banks taper. How have we altered our portfolios to deal with this? Well, we're buying companies that are a little bit more predictable in terms of their cash flows and their dividend yield. And we're positioning our portfolios slightly more conservatively than the very aggressive and cyclical positioning we did last year.
Thank you very much for watching this quarterly review. We'll see you again after the first quarter of 2022. Happy investing!