Rules-based approach means investor funds are more protected from global events.
The Fed has indicated that it expects to cut rates three times this year but stressed that the timing will be data dependent. This timing uncertainty, along with easing inflation, fears of a US recession abating and elections in 64 countries (65 including the European Union) combines to create an investment environment that may be particularly treacherous. Actively navigating this landscape is hard and avoiding costly mis-steps requires deft footwork and probably some luck. At Lodestar we don’t try to predict the future, instead we build robust portfolios that are not sensitive to any single event. This is because our decision making is purely systematic and we are not influenced by the movements of markets or the performance of any particular stock.
Our robust portfolio construction isn’t sentiment-based, it’s tech-led and every investor’s funds are highly diversified meaning they are less affected by mass market movements such as the over-concentration in one particular area such as AI.
Just think of the mega chipmaker Nvidia, part of the so-called “Magnificent 7”. It surged 239% in 2023 with many Wall Street fund managers positing that its stellar growth is not over yet as it continuous to dominate the AI landscape. This stock’s growth is being viewed as bullish with a long runway still to come. But to us, this is of little importance.
Or take the US’s Federal Reserve’s interest rate decisions. While the rest of the world anxiously waits for an announcement on when it will start to reduce rates, the Fed kept the rate at 5.5%, a level it has been at since July of 2023.
While this economic event is considered among the most influential in recent times, it has less bearing on our clients’ portfolios. This is because ours are constructed using a rules-based and mathematically-informed process that is robust and diversified – and importantly not subject to human sentiment. Portfolios are developed scientifically, and we don’t choose assets manually.
During turbulent financial times like these, where, for instance, a possible “Magnificent 7” bubble is not off the table or a global hard landing or even recession as a result of the Fed’s interest rate decision could be triggered; our funds’ performance tends to remain stable and experiences less volatility than our peers.
We trust our rules-based process and have proven it multiple times over to our clients – whatever the global economic weather. This time is no different and whatever happens in the greater investment universe – bear or bull – we shall withstand and lessen the shocks, causing less negative impact on our funds and their performance over time.
Lodestar Fund Managers (Pty) Ltd is an authorised financial services provider, FSP 49808. All relevant disclaimers available on the Lodestar website.