Making sense of yesterday's MR Market

25 August 2015

So a couple of nights ago my daughters and I sat Bambi eyed waiting for the perfect storm to engulf and obliterate our home. Although sensationally and unbelievably scary (especially for a Capetonian) we eventually slipped off to slumber land finding the house still standing the next morning.

Similarly recent share market panic has been caused by largely unfounded concerns about imminent recessions in China and the US. What happened is that a rumor got started that the Chinese government was going to clamp down on liquidity; i.e., the Chinese had too much money in the stock market, and were going to take measures to reign in speculation, investment, etc. The Chinese government announced that this was just a rumor, positive U.S. growth news came out, and government and financial establishment got their ducks in a row. Why is it important? The Chinese own most of America's debt.

So what should we be doing as Mr Market vacillates in this perfect storm? It is generally believed that market concerns about the onset of a global recession are overdone, and this episode is likely to prove to be a healthy correction. Investec Multi-Asset Manager Philip Saunders Co-Head of Investec Multi-Asset believes also that the stock market concerns about the onset of a global recession are overdone and thus this episode is likely to prove to be the former.

Read his full commentary here: Black Monday: healthy correction or something more sinister

Silke Financial Services is firmly of the view that when the share prices of good sustainable companies with good earnings drop, it presents astute fund managers with a golden opportunity to buy these shares at discounted values, which in the long-term can only benefit the investor. Apart from good dividend growth, there is no other way to achieve inflation-beating growth. So in the end, we like 'wobbly' markets as it provides opportunities for investment growth over the medium to longer term.

To panic during times of market volatility is the worst thing you can do as one cannot time the market. It is Essential to always align your investments with your time horizons. Monthly unit trust investors must take cognisance of rand-cost averaging and not try and 'time the market'. Investing on a monthly basis will buy more units of a unit trust when prices are low and fewer units when prices are high. Provided the fund gains value over the long term, you will profit from your purchases during short-term declines.

• Silke Local Cash Management Fund: The portfolios seek to maximise interest income, preserve the portfolio’s capital and provide immediate liquidity. This is achieved by investing in money market instruments with a maturity of less than one 12 year while the average maturity of the underlying assets may not exceed 90 days. The portfolios are typically characterised as short-term, highly liquid vehicles. ASISA Category: South African Interest Bearing Money Market. Minimum Investment Horizon: 1 Year Expected Performance (Net of *SMM fee): FNB Call Rate Daily Index
• Silke Local Stable Fund: These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These port folios tend to display reduced short term volatility, aim for long term capital growth and would have an effective equity exposure (including international equity) below 40% at all times. These portfolios conform to legislation governing retirement portfolios, (Regulation 28 of the Pension Funds Act) and are thus suitable as investment vehicles for retirement portfolios. The underlying risk and return objectives of individual port folios may vary as dictated by each portfolios mandate and stated investment objective and strategy. ASISA Category: South African-Multi-Asset-Low Equity. Minimum Investment Horizon: 3 Years + Explicit Performance (Net of *SMM fee): CPI+2%.
• Silke Local Balanced Fund: These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These port folios tend to display to have an increased probability of short term volatility, aim to maximise long term capital growth and would have an effective equity exposure (including international equity) between 40% and 65% at all times. These portfolios conform to legislation governing retirement port folios, (Regulation 28 of the Pension Funds Act) and are thus suitable as investment vehicles for retirement portfolios. The underlying risk and return objectives of individual portfolios may vary as dictated by each port folios mandate and stated investment objective and strategy. ASISA Sector: South African-Multi Asset Medium-Equity. Minimum Investment Horizon: 5 Years + Explicit Performance (Net of *SMM fee): CPI+5% over a rolling 5-year period
• Silke Local Aggressive Fund: The portfolio is aimed at investors with a long term investment horizon (roughly 10 years and beyond). The long term portfolio is designed to preserve value taking into consideration inflation and spending. The portfolio allows for tactical asset allocation (TAA) strategies. TAA involves setting the portfolio asset allocation by investing in flexible equity offshore and local equity fund managers as opposed to balanced mangers. The offshore asset allocation target is a minimum of 30%. Is to provide investors with Maximum Return (CPI+7% per annum over a 10 year plus rolling period (net of fees)
• The Silke Offshore/Global Fund: The Fund aims to maximise return with minimum risk from a portfolio of international assets, including equities, fixed interest investments, commodities and cash. The flexible asset allocation policy is allows for a diversified, but focused portfolio of undervalued, high quality investments. Is to provide investors with Maximum Return (CPI+7% per annum over a 10 year plus rolling period (net of fees). The benchmark is the FTSE World Index, including income ("FTSE World Index"). Long Term Investment Period.

Our investment process allows us to remain objective in our decision making and provide you with unbiased recommendations at every point in the relationship. Multi-manager analyses the portfolio characteristics of different investment managers, with the ultimate goal of combining them to reduce the potential downside risk investment managers have relative to one another. This risk is a result of investment managers seldom behaving the same way, and seldom producing consistent top-quartile returns. One of the main roles a multi-manager performs is to assess and select the top managers across various asset classes to maximise returns and minimise risk during different economic cycles. SMM’s objective is to deliver superior net investment returns with greater consistency than any single asset manager. It accomplishes this by exploiting multiple sources of return, while diversifying different sources of risk.

Basically, if you have money in the market today, you are really there to participate in the next 15 years of notable growth, and essentially you are saying that you believe in that growth.