History has taught us that there will always be external factors that come into play that we have not foreseen, says Marthinus van der Nest, head of Amplify Investment Partners.
“Our positioning, in all our portfolios, reflects how our managers view the world today, but if there is one lesson we have learnt from the past, it is that external factors we cannot foresee come into play, and if the data changes – if the facts change – they have the ability to act and reposition their portfolios.”
The best minds in the world predict where inflation, interest rates and markets are going, but their predictions, which may be educated and well-founded, are only as good as the data they have. That data can change, sometimes in an unpredictable manner, as it did with the Covid-19 pandemic and war in Ukraine, which could not have been foreseen.
“We could never have predicted the impact that Covid, the war in Ukraine and subsequent higher inflation would have on our daily lives and on the investment landscape. Predictions in markets are increasingly difficult and often futile, and our view is that given this challenge, fund managers have to be agile,” Van der Nest says. “If there is one thing we have learnt from history, especially more recent history, it is that many predictions that are made today, are likely not to come true.
“I do believe that our smaller, highly skilled managers have a proven track record to quickly adapt portfolios as the data changes.”
Amplify looks for skilful managers who are able to actively adapt to ever-changing circumstances. Smaller managers have an advantage over their larger peers in this regard. “Large managers cannot trade out of positions as quickly if the data changes, but in the world we live in, it is important to be able to rethink and adapt positions in response to changing data,” he says.
Amplify has identified a diverse range of next-generation asset managers across various mandates from fixed income to equities, multi-asset and hedge funds. It has appointed 12 managers across 16 mandates, all of which are boutique and outsource their distribution to Amplify.
This strategy has resulted in significant growth in Amplify’s business in terms of a large flow of assets under management and is reflected in the performance of its funds.
Among some specific funds, the Amplify SCI Flexible Equity Fund uses various instruments and techniques to manage risk in volatile markets, delivering an asymmetric return profile. “The essence is management of risks, not returns,” says Omri Thomas, portfolio manager of the fund, which aims to achieve a third of downside and two thirds of upside market movement using tools such as hedging strategies, structured notes and convertible bonds.
Thomas said rampant inflation, high interest rates and unrest are not unfamiliar to SA fund managers. “The globe has become so integrated and the cycles short, and the spread and contagion of information immediate.” Over the past year and up until the end of July, the fund delivered a net return of 21.6% versus its peers of 4.85% and JSE/SWIX of 4.1%.
Murray Winckler, manager of the Amplify SCI Balanced Fund, said long-term investment is about earnings and cash flow but in the short term, sentiment drives the market, and that is where opportunities can be found.
“The more tools you have in your toolbox, the more opportunities you have and the more you are able to intelligently diversify the risk.”