One of our South Africa based financial advisors recently asked me what advice MitonOptimal might have for investors in the current climate. After pausing for a few seconds, I simply replied “Stay invested-and ensure that your portfolio is diversified across asset classes and asset managers.” As many of our long-term investors will already know, the diversification theme is synonymous with MitonOptimal, a strategy that has served us well over the years.
The truth is, along with the vast majority of portfolio and fund managers around the world, no one can accurately forecast whether the US Federal Reserve will raise rates twice or four times over the next 12 to 18 months, or accurately predict whether China will experience a hard or soft landing etc. In the same manner, focussing on South Africa for a second, we can all speculate on whether South Africa will eventually be downgraded by one or more rating agencies, or not, but the simple fact remains that no-one can consistently forecast the future accurately.
On that basis, the message we consistently provide to investors is to focus on the benefits of diversification. Our regular readers needs no explanation of the benefits of diversification or the fact that investors do not have to ‘pay-up’ (pay an additional premium over and above management/ advisor fees) to benefit from a diversified portfolio – in contrast to “secure” investments, where the investor simply pays to “potentially” benefit from a credit guarantee used in ‘structured guaranteed’ products.
Following on from the diversification theme, one of the latest asset class additions to our local and offshore funds is Gold Bullion. During January & February, our South African based funds had exposure to an Alpha Manager, who has gold equities within his Value fund, whilst our local ETF Beta fund has Newgold ETF exposure. Our Offshore funds also added Gold futures and our Global Commodity fund has a long Gold Bullion position.
The justifications for this addition to our funds are:
- The historical objection against Gold for not paying a dividend or interest is becoming less relevant, when more than 20% of Developed Market Bonds trade at negative yields.
- The US Dollar rally, relative to other developed and emerging market currencies, is long in the tooth and Gold acts as an insurance policy to a potential counter-trend action.
- When Gold enters a bull market, as we believe it has, it offers returns in all currencies as it is currency agnostic.
- From a technical perspective, Gold Bullion has made a constructive move. A comment from one of our technical experts summarised it as the potential first leg of an Elliot Wave Theory (5 waves, of which the current move can be the first leg).
It appears that other investors followed our thinking, as ETF flows into Gold Bullion have had their second best month of in-flows ever.
Diversification remains the cheapest security in a portfolio
