Investment commentary: Navigating turbulent financial skies

Ladies and gentlemen, this is the captain speaking…

We’ve entered a patch of turbulent airspace.

In March, the turbulence in global financial markets persisted due to the prolonged uncertainty surrounding the United States’ new foreign policy and the inconsistent and unpredictable implementation of trade tariffs.  We witnessed the Trump administration tarnishing relationships with countries that have historically been some of America’s closest allies.   The Canadian prime minister has officially declared that the old relationship they once enjoyed with the USA is over, and in Trump’s treatment of Ukraine, Europe has come to realise the same.

Furthermore, while the tax cuts promised by President Trump have not come into effect, trade tariffs are effectively acting as tax hikes on foreign goods purchased by the American consumer. The further escalation of the trade war in early April placed multinational business relationships under pressure and created a whirlwind in global financial markets as investors attempted to quantify the impact of the newly imposed tariffs and all possible retaliations on global trade and business earnings.

Domestically, market prices initially held up despite national budget uncertainty, and a lingering unease concerning the vulnerability of South African exporters to the US-centred trade war.  However, those fears were largely realised when President Trump included a 30% tariff on South African goods in a long list of tariffs targeting imports.

Fasten your seatbelt, sit back, and relax.

Although times are turbulent, we believe opportunities remain plentiful, especially when the winds change, and the skies start to clear.  Our primary objective remains to identify growth opportunities while ensuring that clients are not exposed to risks that could result in the permanent loss of capital.

In March, we reduced our overall exposure to the technology sector, which provided protection during the worst of the storm.  Despite the hits taken by the industry, innovation within the technology mega-theme is ongoing, and although a price correction might have been necessary, there remain significant growth opportunities. China is rapidly emerging as a global leader in technology and artificial intelligence, yet Chinese companies are currently trading at significantly lower prices than their US counterparts.  We have taken a small position to gain exposure to the Chinese technology sector, with country-specific risks in mind, which has led to careful and constrained position sizing.

The ‘America First’ ideology has also extended to the Department of Defence, leaving the West uneasy as the US gradually withdraws the security umbrella it once provided. With the Russia-Ukraine war next door, European leaders have committed to drastically increasing their military spending. This stimulates the economy and usually leads to increased innovation that spills over into the private sector.  Furthermore, the fiscal stimulus planned by the newly elected German government creates significant investment opportunities in a relatively undervalued Europe.

To capitalise on the opportunities arising from these international shifts, we have entered two new positions in funds that identify specific companies in markets like Europe and China that are both well-priced and well-positioned to benefit from the tectonic shifts underway.  These positions act as diversifiers in the broader portfolio, providing an alternative source of return to the typical offshore fund that is heavily reliant on the American market.

On behalf of the flight crew, thank you for flying with us.

The MitonOptimal IP Flexible Growth Fund aims to provide clients with medium to long-term capital growth of inflation plus 5%, from a portfolio that maintains a moderate to high risk profile with reasonable capital stability.  While not immune to some turbulence in the short term, the fund has provided a significantly smoother ride than both the South African and US markets, generating returns with significantly lower volatility, while avoiding clients’ exposure to the sharp drawdowns of the equity markets.

Thank you for choosing BVSA as your financial partner.  We aim to make your journey as comfortable as possible and see your financial success soar to new heights.

Written by Kobus Jansen van Vuuren

*BVSA assists MitonOptimal in the investment management of the MitonOptimal IP Flexible Growth Fund, managed specifically for BVSA clients and used as the primary growth-building block in most of our client portfolios.