In the eye of the storm, active management is key

The invasion of Ukraine has had a differential effect on markets and a huge impact on investor uncertainty. 

European markets have experienced significant downward pressure, but stocks in the US rebounded after an initial fall in the S&P 500, and the JSE ALSI has kept rising since February 24.

“SA markets are up on the back of a surging oil price, with the rise in oil to over $110 per barrel and currently at a level last seen in 2008 evident in the share price of companies like Sasol, while gold and platinum shares have rallied,” says Marthinus van der Nest, head of Amplify Investment Partners. 

“While the JSE has been buoyed by the resources sector, the rally has actually been quite broad-based with the exception of Naspers and Prosus,” he says. 

Amplify expects knock-on effects of the war to be evident in food inflation, exacerbated by rising petrol prices, making inflation a growing risk in our market. “It had been a risk before, but, given the spikes in these prices, the risk now is much greater and it will take longer to bring inflation under control”.

There are many different outcomes to the current conflict in Ukraine, depending on the level to which it escalates and the effect of the sanctions on commodity prices and inflation.  It is almost impossible to predict the eventual outcome, but the information flow will have an effect on asset prices. “As the data changes, portfolio managers will have to be agile, protect where they need to protect and take advantage of mispriced assets where these become evident.”

“Smaller, skilful managers have the ability to adjust their portfolio to take advantage of these opportunities and protect investments if they believe there are risks inherent in the market.” 

Amplify identifies independent managers to manage its unit trusts and hedge funds based on their demonstrated agility and ability to adapt portfolios to changing market conditions.

“Events like these often have a big, short-term impact, but if we think back at what happened two years ago when Covid first broke out, markets are at or close to historic highs,” Van der Nest says. 

“When Covid broke out there was a huge flight to safety. Fixed income attracted a lot of assets and in that panic, many investors lost out in the strong recovery of the markets. Investors should not panic, but trust their managers’ investment philosophy, and trust in their ability to wade through the noise to find opportunities for clients.” 

This strategy has proven its worth in terms of Amplify’s performance and returns as its managers protect against risk and find opportunities in depressed securities prices and discounted oversold companies. “We went through a sideways market from 2015 to 2020 and a severe crash in February and March 2020 followed by a strong rally. Our managers have been able to do extremely well in all of those situations because they have the ability to adjust and adapt. We believe strongly in our managers’ ability to do the same in this time of uncertainty and volatility.”

Ven der Nest made these comments at the March 4 Amplify OneMoment Experience, a virtual event featuring investment leaders in the macro, bond, equity, and multi-asset fields, as well as environmental and social champions.