The importance of considering all the investment options available and making the right decisions now to create positive outcomes for investors in the future, was the focus for this year’s i3 Summit, hosted by Sanlam Investments and Glacier by Sanlam. “We have the power to design our futures and create a world where we can all prosper,” said Nersan Naidoo, Chief Executive of Sanlam Investments in his opener, adding that there has never been a better time to be an investor. Khanyi Nzukuma, chief executive of Glacier by Sanlam, concurred and pointed out the important role of thought-leadership investment conferences such as the i3 Summit to ensure that, as custodians of investors’ wealth, the financial industry stays relevant and ahead of the curve in finding the best outcomes for clients.
The MC was acclaimed TV personality Lerato Mbele-Roberts, who introduced an exciting line-up of speakers, including honoured guest and former public protector, Professor Thuli Madonsela and acclaimed heuristics expert, Baba Shiv from Stanford University. Against a somewhat bleak socio-economic and political backdrop, three industry experts explored a synopsis of current investment industry trends and illustrated that with some innovative thinking and creative portfolio construction, positive investment outcomes are well within reach for investors.
Social enterprise as the ultimate enabler
In her keynote address, the motivational thoughts expressed by Professor Thuli Madonsela were encouraging for anyone practicing in the investment industry and in the current, challenging economic climate. She emphasised the importance of social enterprise, which requires a balance between investment, wealth creation and addressing social injustice and inequality.
Neural networks: How they shape emotions, motivation and decision-making
Like it or not, emotions drive 90 – 95% of our decisions. So says Baba Shiv, Sanwa Bank’s Professor of Marketing, Co-Director of the Strategic Marketing Management Executive Programme, and Director of the Innovative Technology Leader Executive Programme at Stanford’s Graduate School of Business. Drawing on intriguing research on the emotional brain, Shiv explained its powerful role in shaping human decisions. He explained how people can learn to regulate neurochemicals like serotonin and cortisol which affect every day decision making, to be able to make better investment decisions.
Says Shiv, "When making decisions on behalf of clients, always do it through the lens of the human emotional brain. If you pit the emotional brain against the rational brain, it is the emotional brain that wins every time".
It pays to be tech savvy – but don’t get caught up in the ‘hype cycle’!
Richard Clode, portfolio manager on the Global Technology Team at Janus Henderson Investors, gave an illuminating presentation on ‘Investing in Disruption’, an analysis of just how important technology has become as a disruptor in driving returns. Tech promises to be a critical player in, and an enabler of, portfolio construction. One of the most intriguing statistics quoted was that 75% of millennials would more readily purchase financial services from a tech company than they would from a traditional financial services provider. That said, the role played by human advisers continues to be relevant (read “essential”) in well-constructed, cogent portfolios.
Be aware, however, says Clode, “Not all technology stocks are created equal. Some stocks disappoint and could turn into “zombies”, so be sure to avoid the ‘cycle of hype’ that is common amongst tech stocks. Always interrogate thoroughly what is trending; be discerning, be selective”.
A compelling case for factor investing (or smart beta)
Kingsley Williams, CIO at Satrix, outlined the ways in which portfolio construction could be revolutionised using style factors such as momentum, value, quality and yield. In his presentation on ‘Factor Investing’, Kingsley likens building a portfolio (in particular, using factor investing to do so) to harvesting various water sources in a drought. He shows how capturing water is much akin to harvesting certain risk premia or styles in investing, popularly known as factors.
During adverse market conditions (likened to a drought) factor investing offers a cost-effective and more predictable source of return. Says Williams, “One of the most valuable attributes of factor investing is that it removes the emotion and other human behavioural biases so common to investors. Its rules-based and systematic nature helps us navigate the tough investment decisions that our emotions (such as fear and greed) may sometimes hinder”.
An alternative (investment) universe
Gavin Ralston, Head of Official Institutions and Thought Leadership at Schroders, presented on how to find additional sources of return in portfolios and lower risk, using alternative asset classes. He noted that in the next decade investors would not see the double-digit returns from traditional asset classes experienced in the past.
Says Ralston, “Traditional asset classes like equities and bonds are just not going to yield those above-inflation plus returns that our clients are looking for. We have to venture off the beaten path in search of alternative investment vehicles that can reveal those hidden sources of alpha”.
Ralston says, “Investing in alternatives is by no means easy, but definitely worth pursuing. They give you higher returns, are a powerful diversifier, offer broader exposure to economic growth, they lower risk, and generally offer a smoother overall return profile”.
Pulling the threads together
In the panel discussion that rounded off the day, facilitator Leigh Köhler, head of Investment Solutions at Glacier, summarised a few additional nuggets from the keynote presenters:
- To meet the need for stability, especially in long-term portfolios like living annuities, alternative asset classes such as infrastructure and private debt are great diversifiers and potential sources of return
- In South Africa, balanced funds are more popular than hedge funds as the latter previously did not protect portfolios well following the 2008 global financial crisis. But hedge funds could be coming back into vogue if down markets persist.
- Investment strategies can be protected by technology in two ways, among others:
- Data scientists are necessary to analyse, organise and prioritise data to enable investment decision-making criteria.
- Technology can drive investment platforms.