Gorilla-wrestling, the new normal and business unusual

May was an interesting month for investors as the impact of Covid-19 kept most of the world indoors and still under some form of lockdown. What at first was thought to be a 3-week imposed lockdown to flatten the curve, stretched to almost 10 weeks of hard lockdown for us in South Africa. As the world’s economies started finding their respective footings during the month of May, the globe is now forging its way into the ‘new normal’ and ‘business unusual’.

Global equity markets continued to make up the ground lost in March with strong returns for the month, rewarding those who have remained invested through the cycle. Our local fixed interest market, with yields still trading well above inflation and amongst the highest in world, remains one of the most exciting prospects for investors – and the inflows have shown.

The Rand, after losing more than 20% of its value against major currencies in the first quarter, rebounded by some 7.50% over the month, buoyed by both a positive sentiment towards emerging markets and the high bond yields on offer. With some ground still to go before the Rand gets back to ‘fair value’, the impact of the currency on asset prices cannot be ignored.

The concern remains that the economic reality of Covid-19 is not reflecting in asset prices, and the prospect of further downward moves, or a “W-shape” to the recovery is possible. While we cannot be certain of this, we have used the pockets of positive market returns to rebalance our risk within the Octagon Funds, and remain relatively defensive in our positions across all strategies. As we have said before, when the recovery does come (and it will!), we don’t want to be standing at the proverbial punchbowl when the party gets going, and are then left out of the early gains.

So, instead of selling out of risk-assets entirely, we have focused on our selection of managers who have proven their abilities to navigate periods of immense challenge in the past – tried and tested ‘gorilla-wrestlers’ who we are confident will continue the fight until the gorilla tires himself out.