Amidst major global geopolitical uncertainty, investors – both institutional and retail – have good reason to be edgy about safe-guarding their portfolios. Major macro events from the recent Israel-Iran attacks, the broader Israel-Palestine war, the Ukraine-Russia conflict, raging oil prices, the cost-of-living crisis thanks to spiraling inflation, the US interest rates and weakening dollar, not to mention the 64 elections taking place this year, means most investors are jittery as their portfolios and performance are directly affected.
South Africans tend to use actively managed investments as they search for alpha across asset classes. This means that at times like these, where risk is rife, human sentiment may play a greater role in their portfolio selections. However, it’s potentially a riskier way of protecting clients’ wealth in the short term, notwithstanding fund managers’ efforts to prevent it.
Whether you are investing actively or not, the fact is US stocks have been volatile as inflation remains sticky and geopolitical tensions rise. The latter is also keeping the oil price elevated, with some, such as the World Bank, suggesting we could be nearing $100 a barrel for Brent Crude which will directly impact inflation and see US interest rates hold firm between 5,25% and 5,50%.[1] Collectively, this has a direct impact on asset classes across the spectrum and has increased the complexity of active fund management. This makes it more vulnerable to human error, adding another layer of risk when investors can afford it least.
How does an investor avoid exposure to this type of risk, one that cannot be wished away?
Rules-based investing is a reliable and simpler way to navigate this environment for both institutional and retail investors. It works by using a set of predetermined rules to make investment decisions, instead of relying on human judgement as events unfold. This immediately negates any knee-jerk emotional or impulsive decisions made on the fly which can negatively affect returns. Further, rules-based investing relies on facts and data, rather than intuition and gut feeling, making for a more scientific and robust investment approach to help investors reach their goals. If implemented correctly, it is more transparent than active investing, provides greater clarity about future expectations and forces increased accountability for missed targets.
Lodestar’s rules-based approach was designed in 2015 to focus explicitly on risk management after being tested on decades of data. The proof is in the pudding, and we currently have over R2,8-billion under management. We built our own systematic rules and technology which have been highly effective multiple times over. Importantly our rules-based investing approach rides the wave of global volatility better than our active or passive peers over the long term because it does not rely on human sentiment and is not subject to luck.
Irrespective of how long the Middle East conflict continues, the Fed remains firm on holding its rates position or how startling election results may be, Lodestar’s rules-based investment approach won’t change, it can be trusted to remain the same. Designed to be robust to withstand times like these, we ensure clients’ investments are safer and less exposed to unnecessary risks and financial losses.
Lodestar Fund Managers (Pty) Ltd is an authorised financial services provider, FSP 49808. All relevant disclaimers available on the Lodestar website.