SA bonds offer enticing returns for 2023

President of the European Central Bank (ECB) Christine Lagarde has warned that the bank is not done raising interest rates and that inflation still has a way to go. Her statement follows rising optimism about easing eurozone inflation, driven by a sharp fall in European wholesale energy prices, combined with an easing of supply chain bottlenecks. 

With this environment in mind, SA’s leading balanced and multi-asset fund managers are going off script in search of market-beating returns for investors through 2023, as they find it increasingly difficult to call patterns based on historic market performances — considering the almost unprecedented market conditions they face. 

“Many commentators compare today’s low-growth, high-inflation and high oil-price environment to the 1970s and suggest fund managers can use these similarities as a magical, historical road map to predict market inflection points,” says Jason Swartz, portfolio manager at Old Mutual Investment Group’s (OMIG) MacroSolutions capability. Unfortunately, there is no rule or historic pattern that accurately predicts market peaks and troughs.

He says the best fund managers can do is continually assess their asset allocation themes and valuations in light of prevailing macroeconomic conditions. And based on these assessments, they can ensure their portfolios contain the correct mix of bonds, cash, equities and listed properties in domestic and offshore markets. 

“We rely heavily on macroeconomic inputs to perform our asset allocation function,” says Swartz, before singling out global inflation and rapid liquidity tightening (rising interest rates) as major influencers of fund manager decision making. It turns out there was nowhere for investors to hide in 2022, with inflation and interest rate shocks causing the bond and equity asset classes to fall simultaneously.