Quarterly Commentary - Q1 2021

At Granate, our commentaries are sometimes somewhat unconventional, as we often communicate how we are thinking as opposed to what we are doing. This commentary is a good example. One of our team members, Alida, became a mother for the first time last year. She has noted a few similarities between having a new-born baby and launching a new unit trust, which she shares. Reminding ourselves of the three main parallels discussed in this commentary will certainly make us better fund managers (and, perhaps, better parents).

Year one: Looking back on the launch of our multi-asset funds

A baptism by fire

In March 2020 – the month after we launched the Granate SCI Balanced and Granate SCI Flexible funds – South Africa entered its first, and strictest, COVID-induced lockdown. Along with it, the markets crashed. We had recently moved from Cape Town’s city centre to our current space in Newlands’ historic Josephine Mill, and had overlapped as the full current Granateam for just under three months.

What a time to start a fund.

Bronwyn reflects in her commentary this quarter on our income funds’ five-year birthdays, and the parallels between parenting and investing. With our multi-asset funds having recently turned one, we couldn’t help but feel like proud new parents too. Those in the team with young children recognised many of the emotions we shared over the year as we watched our new funds grow. We’ve also been reminded of simple but important principles that are as true to how we manage our clients’ savings as they are to navigating life-as-you-no-longer-know-it with a new baby.

  1. You can’t plan for every eventuality, but you can get the odds in your favour

For most first-time parents, the excitement of arriving home with your new baby is accompanied by a sliver of fear – you don’t quite know what to expect, aren’t sure of precisely what to do and have no idea how this new life journey will unfold. So, you equip yourself with the tools available to prepare as best you can: advice from trusted sources, learnings from books and research, and, if you’re lucky, the help of a support system around you. Later, you’ll baby-proof, covering plugs, adding safety latches to cabinet doors and securing heavy objects from accidently being pulled down.

When it comes to making any investment, we also start with research. While this is mostly our own, we will consider the views of trusted sources as we build a deep understanding of each company we look into and the industry in which it operates. Our support system is our team, as we evaluate each other’s research critically, play devil’s advocate to identify possible blind spots and debate points of difference at length. It helps us build true conviction and reduces the chances of making poor calls.

But of course, we can’t tell the future, and will never know everything. After all, who could have predicted that the month after launching our new funds the JSE would tumble to a seven-year low amid a global pandemic? So, we do our best to ‘market-proof’. We won’t invest if a positive result depends heavily on one particular outcome. When we do invest, we require that the instruments we buy offer a safety buffer by trading below what we estimate they’re worth. Finally, we make sure that our portfolios are well diversified, so that if some parts underperform, others can compensate.

  1. Trust your process, even when it’s scary

As a new parent, you’ll receive more advice (much of it unsolicited) than you can possibly use, from people whose opinions you respect all the way down to strangers in grocery store queues. You take in what you believe you can use and discard what you know you won’t, but ultimately it comes down to trusting your gut and doing what you know is right for your child.

Similarly, there are many approaches to investing, and widely conflicting opinions on strategy and execution. So we too have to filter out the noise, focus on the fundamentals and stay true to our process. It’s not always easy. When news is negative, markets are falling and investors generally are running for the exits, it can be uncomfortable to be a buyer. But if a company has gone through our process and we believe in its prospects, what better time to invest than when prices are low? On the flipside, when the prices of the companies we’re invested in rise excessively on the back of market euphoria, it can be very hard to sell. Sticking to our process – which requires a margin of safety in each instrument we own – helps to make it easier. It doesn’t mean that we, like many parents, won’t wake up in the middle of the night wondering if we made the right decision at the best possible time. But trusting in our process does mean that we don’t stay awake too long.

  1. We’re in it for the long haul

Being a parent is a lifelong journey. For our clients, so too is growing and protecting their savings. We’re in it with them for the long haul. Just as parents marvel over their children’s first words and steps, we trust that there will be many highs and milestones to celebrate: a growing track record, and a broader base of clients who choose to partner with us. But we also know that there will be lows and that, at times, investment returns may disappoint. The key is to keep the long-term goal in mind. For parents, this means raising their children to become what they deem to be successful adults. For us, it’s delivering on our fund mandates over the appropriate investment horizons, so that our clients are meaningfully better off for having invested with us.

Thank you for blowing out a candle with us on our multi-asset funds’ birthday. We look forward to blowing out a growing number with you over the many years ahead.

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Portfolio Manager: Paul Bosman

Portfolio Manager

Paul joined Granate Asset Management in July 2019 as an Executive Director and Investment Professional. Prior to this he was a portfolio manager at PSG Asset Management, where he was responsible for the PSG Stable and PSG Balanced Funds. Before being appointed portfolio manager, he served as an equity analyst in various subsidiaries of the PSG Group.

CFA Charterholder
BCom Hons from the University of Stellenbosch