Why active fund managers are more important than ever before for South Africans investing globally
The investment industry is entering a new era of opportunity for active global fund managers.
This is according to Laurium Capital UK Global Equity Analyst Ross Yammin, who said the trend contrasts with the period post the global financial crisis – when many active fund managers have struggled to outperform global passive indices.
“The low interest rate environment which the market experienced post the financial crisis until March of 2022 really drove passive performance.”
“It was a tide which lifted all boats and so the importance of fundamentals was less relevant with the cost of money being so close to zero.”
“As the market has digested the current higher rate environment, we feel the importance of fundamentals has really come back into focus and this is an environment where active stock pickers have the ability to thrive,” said Yammin.
Laurium has been building its global equity capability since December 2018 and has delivered impressive returns. As Yammin points out, this has been a difficult environment for Active managers.
The AI revolution
Since March 2022, the investment landscape has changed significantly.
On top of a higher rate environment, the rise of AI has caused a massive uptick in performance of seven major technology companies – dubbed the Magnificent Seven.
Most popular indices are weighted by the size of their constituents’ market capitalisation, and now have a significantly higher portion invested in a handful of companies than has been the case in recent memory.
This means these indices are far less diversified than they have been in the past.
If performance is to broaden out away from the Magnificent Seven, an active manager has the ability to pivot quickly towards other opportunities.
This is a major advantage in an environment where popular indices such as the S&P 500 have approximately 30% of the index made up of the Magnificent Seven.
“Think of a geography like China, the Eurozone or the United Kingdom. Companies listed in these geographies have been largely left behind as passive money has flowed into a handful of stocks in the United States.”
“There are many growth opportunities in areas like these which investors may not get enough exposure to investing through a passive index,” said Yammin.
Yammin highlighted Anglo-Swedish company AstraZeneca as an excellent example of an undervalued share that Laurium Capital has identified.
He said it is growing its earnings in the low double digits and trading at a 17x forward PE ratio. This is compared to the MSCI World index, which trades at a 20x forward PE and is growing earnings at a slower rate.
Yammin added that the “roster of opportunities” like AstraZeneca has grown significantly following the concentrated performance of the initial AI boom – making the current period an exciting one to be an active global manager.
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