There have been just three occasions since 1929 when bonds and equities went down together: 1931, when Britain abandoned the gold standard; 1941, when the US entered World War II; and 1969, as a result of rising inflation, energy supply disruptions and fiscal stimulus – much like the conditions that are now in play.
Thomas explains that those with too much invested offshore can end up with considerable portfolio weakness when the rand strengthens – as has happened in recent weeks. This is shown below in the asset allocation of the Laurium Stable Prescient Fund. Though the weightings may differ in other Laurium-managed funds, the underlying asset allocation philosophy remains the same.“We feel there are attractive risk premia on offer across the SA yield curve and are overweight SA fixed income as an asset class across all of our multi-asset portfolios,” says Melanie Stockigt, co-portfolio manager at Laurium.
“We think that we have passed the current cycle peak in SA inflation, which is expected to fall back within the target range in the first of half of next year, and thereafter trend back towards the 4.5% mid-point,” adds Stockigt. “We spend a lot of time looking at historical correlations. We have a rigorous formal asset allocation process, people with a lot of market experience through different cycles, and we forecast what we think the risk-adjusted returns from different asset classes will be over the next year, and then blend them according to the investment mandate.