Citadel recently held a client presentation briefing in Sandton, the intention being to touch base with clients, open the floor to questions and outline a broad view of the world of investing six months into the year.
Advisory Partner Coert Grobbelaar summed out the prevailing mood when he commented: “It feels like we’ve been in this cycle for years. These days my clients actually phone me to see how I’m doing, how the stress is and how I’m surviving and coping.”
Through uncertainties from Trump to Brexit to North Korea firing missiles, Grobbelaar stressed that 20 of the best minds in the business were based at Citadel Cape Town, researching and guiding the Citadel advisory team on “how to structure your portfolios and to do the best things possible in this environment to make sure that your portfolios are safe and growing”.
Head of this team is George Herman, a professional with 30 years’ experience in the business and a man enmeshed in the markets. He’s also a former provincial rugby prop and an avid golfer, so he knows how to get out of tight corners, how to read the field and the importance of patience.
Herman jumped straight into the discussion by stressing that “sometimes the news creates a lot more chaos than the markets deserve. What we do is try to get through all that noise and get back to the basic values of investment.”
Often that means walking a different path to the one everyone else is running down, but if that decision is based on solid fundamentals and a sound understanding of the market, then this is what will ultimately differentiate the successful investor from the fly-by-night variety.
To illustrate this point, Herman touched on the issue of global growth, noting that money is pouring into emerging markets as investors chase the 4.1% (2016) growth number. With China slowing to growth of 6.7%, the United States (US) growing at 1.6% and the European Union (EU) at 1.7% – roughly in line with developed world growth of 1.6% – emerging markets continue to draw in investors. But, warned Herman, “investors chasing GDP numbers don’t last long”.
Yes, he agreed that emerging markets represented a “decent story”, but warned against getting overly excited. Writing off China would also be a significant mistake, he said, while noting that with the US embarking on a rate hiking cycle – and with rates now at 1.75% higher in the US than Europe – there would inevitably be a “flow of money into the US which supports the valuation of the US dollar”. At the same time, key emerging market nations like South Africa, Brazil and Russia have not been feeding off the global synchronous growth uptick – recording 2016 GDP growth of just 0.9%, -3.6% and -0.6% respectively.
Right now the global growth uptick is keeping investors feeding, but for how long?
“For 2017 we are constructive about global growth. We are constructive in engaging with risk assets,” he said. “Because in an environment where the world grows at 3.3% things should be pretty fine.” But is this peak growth? Is this as good as it’s going to get?
“We have a strong feeling that this cycle is about to mature somewhere in 2018,” said Herman. Despite the ebbs and flows, this 10-year period of sustained growth marks the longest growth cycle the world has seen. “So this is getting a bit long in the tooth,” said Herman.
By George Herman, Citadel Chief Investment Officer