\”It is better to be roughly right than precisely wrong\” – John Maynard Keynes
Just when you thought it was time for a good break, along comes Omicron, the latest variant of the SARS Cov-19 virus. In many ways, this is another reminder that the future is not certain. Trying to predict the future precisely is thus a futile exercise. However, there is significant opportunity in trying to pick out certain themes that could play out over the near to medium future, with the understanding that these themes may play out in different ways.
So, what are some of the key themes that we are watching and thinking about?
In 2021, we experienced a brutal third wave of Covid-19 caused by the Delta variant. We had high levels of infections and lost many of or friends and family. For a brief time, our infection and death rates were coming down and we thought that life would soon return to normal. Alas, the dreaded virus mutated and our brilliant scientists in South Africa discovered the latest variant of the virus, named Omicron.
What are we looking for? How will the virus mutate, how quickly can we develop herd immunity either naturally or through vaccinations? We watch this to try and understand how we should manage our risks or even take advantage of opportunities that may be presented depending on how this plays out. An example is the continued acceleration in the technology trends of online and digital growth for work from home, on-line shopping, on-line gaming on the one hand and release of the pent-up demand for travel and physical entertainment, increase in elective surgeries that were curtailed during the peak of the pandemic.
Long Bull Market with Easy Monetary Policy
We are witnessing one of the longest bull markets in history, fueled by easy monetary policy (i.e., central banks printing money and creating liquidity) since the GFC (Global Financial Crisis) in 2008. Covid-19 providing another reason to extend this easy monetary policy. At some stage this easy monetary policy must stop, otherwise we will witness high inflation across the globe. In fact, inflation has been ticking up and there are views that this may not be transitory impacting consumers, especially the poor and investors.
What are we looking for? What will central bankers do with interest rates and quantitative easing? Will this tame inflation or could we witness sustained high levels of inflation in the coming years? How will the stock market react and how should we be positioned for different outcomes? When will the stock market correction come and which sectors will be mostly impacted? An example of industries benefiting from mildly higher inflation are banks and retailers. In contrast, companies that require continued investments to grow tend to do badly.
Cold War 2.0
One of the risks we are also watching closely now is the increasing tension between the West and Russia on the one side and the West and China on the other side. The situation in the Ukraine and the diplomatic boycott of the Beijing Olympics are pointing to increasing tensions.
What are we looking for? Could this lead to war or a cold war or even both? And how could this impact the world order, global and local security, the markets, the supply chain, etc. Ironically, markets tend to do well in war times. Could this trend continue? How should we position our and our clients’ funds?
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These are a few of the themes that we are tracking.
To date, 2021 has been a good year for the portfolio and we have attracted significant flows from existing and new clients. Some of our winners this year include MTN, Aspen and Shoprite locally, and ASML, Microsoft and Berkshire Hathaway offshore.
Going into the new year, our fund has excess cash that we plan to deploy as these, and other themes play out and we see opportunities in specific companies or sectors to invest in.
Finally, we wish all our clients, staff, and partners well over the festive season. We hope you can rest and spend quality time with your loved ones.
November 2021 Fund Fact Sheet
The Lunar BCI Worldwide Flexible Funds November 2021 Fund Fact Sheet can be found on our website, showing the latest performance of the fund, amongst other pertinent information.
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