Jacobus Brink, head of investments at Novare Holdings
A great investment coach guides investors through the worst bouts of volatility, helping clients thrive and find new opportunities when everyone else is unnerved.
Financial markets have so much to contend with right now that the coronavirus pandemic risks becoming a footnote in a long list of uncertainties facing investors.
Shortages of everything from energy to computer chips are reigniting inflation fears. Interest rates are climbing from record lows. Central banks are preparing to end unprecedented stimulus programs that have injected trillions of dollars into the financial system and propelled global asset prices to all-time highs.
As these and other risk events unfold, it’s easy for investors to get caught up in the panic and react with both knees jerking. That’s especially true of investors who haven’t been adequately prepared by advisers or those managing their money. It’s best to pause and make conscious financial decisions.
An exemplary coach guides investors toward their desired outcome by continuously nurturing their relationship through regular contact and detailed awareness of their needs. A consistent track record of performance underpins this trust. When there are short-term setbacks, investors must be encouraged to stay the course to achieve their long-term financial goals.
Training helps clients understand the consequences of choices available to them. Most of Novare’s clients are long-term investors, such as pension and retirement funds, so our mandates include an active educational role for trustees.
Feedback is provided through tailored monthly reports. Novare Chief Executive Officer Olaotse Leepile regularly meets clients, and we also hold group quarterly feedback sessions. Proactive communication and an open line are essential when there’s a crisis.
Clients must be comfortable to ask questions, no matter their level of financial or investment literacy. When they do engage, we don’t spin a story. We back up information with data and keep it simple. Authenticity is key to building lasting relationships.
We manage our clients’ money by setting a long-term strategic asset allocation goal, which is influenced by an investor’s return expectations and cash flow needs. Then, what’s pertinent in these volatile times, is that we add an active tactical overlay, which allows for short-term changes based on current economic or market developments. Our investment committee rigorously debates these.
As a multi-manager, we allocate the capital we receive from clients to other managers we have studied and formed relationships with, based on what asset classes we believe will outperform inflation.
Over the past 20 years, Novare has built a reputation as an alternative asset manager. We select hedge fund managers who can achieve positive returns whether markets are trending up or down. We also have teams that focus on environmental, social and governance issues and funds concentrated on African real estate.
Diversification is one of our key messages. The funds that we typically include aren’t that aggressive, and if they are, we will manage that risk at a portfolio construction level. Say, for instance, a fund returned 60% last year and is on track to gain another 40% this year. Instead of investing 50% of our clients’ money into that fund, we would allocate 5%. If it can go up 60%, it can go down 60%.
While alternative assets are great diversification tools, it’s an ongoing learning curve for investors, so clear and straightforward communication is vital.
At Novare, we don’t necessarily try outperforming raging bull markets but also ensure that we add value in downturns.
Right now, stock markets look nervously overpriced and could possibly see a further correction over the next few months before rebounding. The odds are also skewed toward a dimmer outlook for company earnings. At the same time, troubles in China’s property sector may spread to its bond market, which will reverberate globally.
With the era of cheap money ending, the world’s economies and their capital markets are heading into unfamiliar territory where volatility will be the order of the day.
If investors understand the benefits of money that keeps compounding positively and avoid drawdowns, their cash will be better off.
As fund managers and advisers, we need to constantly remind ourselves that we’re managing other people’s money, and without them, we wouldn’t exist, so we need to be with them every step of the way.