Carla de Waal: Head of multi-management at FNB Wealth and Investments
Given everything that markets have experienced in 2020, what lesson stands out most?
It is difficult to single out one lesson from an extraordinary year like 2020. I would highlight the following three: life is short, get back to basics and focus on what is within your control.
The first two are related – the pandemic touched so many people in so many ways, far closer to home than many of us could ever have envisioned. But it also forced one to consider what you deem important in your life and focus on that. Does how you’re spending your time reflect your values?
Getting back to basics also relates to investments. In times like these, we have to remind ourselves and our investors about the basic principles, such as using diversification to build robust portfolios, taking advantage of depressed asset prices when everybody else is fearful, and having sufficient exposure to asset classes that can beat inflation if you invest for a long-term goal.
The last lesson also relates to how we should manage our emotions when it comes to our investment portfolios. You can control the exposure to asset classes you want to take; you cannot control what happens in the market. But if you are sticking with your investment plan, you increase your chances of meeting your investment objective. Let the experts do their job.
What is the most important asset allocation decision you made this year?
I think when we look back at the past year, the important asset allocation decisions (not only for us but also for our underlying managers) perhaps won’t be as much about where we invested but more about what we did to avoid losses. It paid off to be more defensively positioned with increased liquidity available, not only to accommodate clients who needed that but also to be able to reposition portfolios where necessary.
When looking at our underlying managers, more nimble portfolios and processes were better placed to be flexible and take advantage of the opportunities that the dislocations in the market presented. For us, an example of such an opportunity came in March when we materially increased our local bond exposures in our asset allocation solutions.
As a multi-manager, the value of having exposure to multiple sources of alpha was again highlighted – we don’t have a crystal ball to predict what asset class or investment strategy or style will do best over the next period, but if we have sufficient exposure to skilled managers that can harvest returns from multiple sources, our portfolios will be more robust through the cycle.
Did you allocate to new managers in 2020?
We need to stay close to the managers we already use in our solutions. How are they navigating through these times? Who is making changes to their portfolios? Who has lived through similar volatility before and what lessons from those periods are they carrying over to now? A lot of focus went into analysing performance results and testing these against what was ‘promised on the tin’.
It is much harder to build a relationship with a new manager remotely. Even when we could still have face-to-face meetings, it takes a long time to ensure we are comfortable enough with a manager before we’ll entrust our clients’ (and our own) money with them.
What is the most valuable discussion you had with an asset manager during this period?
Some of the valuable discussions centred around understanding how robust the business of an asset manager remains and able to withstand the volatility in revenue brought about by a severe drop in levels of assets under management. However, equally important was getting a sense of how asset managers supported their employees through the difficult and stressful market and economic conditions – you cannot have a sustainable business if your people aren’t happy.
What has been the most important attribute for fund managers to display in 2020?
We have always and continue to value openness – not only in terms of how easy it is to engage with our managers (although we appreciate that clients on all fronts demanded more face time, and that managers had to balance this with very demanding market conditions), but also in how open the managers are about mistakes they made, where they were lucky in their portfolio calls, where they changed their mind, or what about their portfolios, businesses or industry is worrying them.
If you look back on 2020, what would it mean for an asset manager to have added value?
In a multi-managed solution, asset managers add value by bringing something different to the table. As a multi-manager, we want to deliver a smoother return profile for our clients and thus select different managers that, in combination, increase our chances of doing so.
Looking back on 2020, we would consider a manager to have added value if the manager successfully executed its investment process and fulfilled its role in the total portfolio.