i3 Summit: into the storm

‘Decide. Design tomorrow today’ was the theme of the sixth annual i3 Summit, hosted by Sanlam Investments and Glacier by Sanlam recently.

The summit centred on the importance of considering all investment options available and making the right decisions now to create a confident approach to the future that ensures a positive outcome for investors.

‘We have the power to design our futures and create a world in which we can all prosper,’ Nersan Naidoo, Chief Executive of Sanlam Investments, told delegates in his opening address. ‘There has never been a better time to be an investor.’

Khanyi Nzukuma, Chief Executive of Glacier by Sanlam, concurred, pointing out the pivotal 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.

Professor Thuli Madonsela.

Adding polish and shine to the event was the MC, acclaimed TV personality Lerato Mbele-Roberts, who introduced an exciting line-up of speakers. They included the guest of honour and former Public Protector, Professor Thuli Madonsela, and heuristics expert Professor Baba Shiv of Stanford University in the US.

Against a somewhat bleak socio-economic and political backdrop, three industry experts explored a synopsis of current investment industry trends. They illustrated that with some innovative thinking and creative portfolio construction, positive investment outcomes were well within reach for investors.

‘Eagles fly into storms – they use the winds to gain altitude and rise above the tempest’, was one of the motivational thoughts Professor Madonsela expressed in her keynote opening address at Spier. This is an encouraging metaphor to bear in mind for anyone in the investment industry – particularly in the current 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 your (client’s) emotions, motivation and decision-making

Like it or not, emotions drive 90–95% of our decisions, said Professor 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, he identified its powerful role in shaping human decisions. He explained how people can learn to regulate neurochemicals like serotonin and cortisol, which affect everyday decision-making, to be able to make better investment decisions.

‘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, the emotional brain wins every time,’ Professor Shiv said.

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 he quoted was that 75% of millennials would more readily purchase financial services from a tech company than a traditional financial services provider. That said, the role played by human advisers continues to be relevant (read ‘essential’) in well-constructed, cogent portfolios.

‘Not all technology stocks are created equal. Some stocks disappoint and could turn into “zombies”, so be sure to avoid the “cycle of hype” common among tech stocks. Always interrogate thoroughly what’s trending. Be discerning, be selective,’ Clode warned.

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’, Williams likened building a portfolio (in particular, using factor investing) during adverse marketing conditions to harvesting various water sources in a drought. He showed how capturing water is much akin to harvesting certain risk premia or styles in investing, popularly known as factors.

During adverse market conditions factor investing offers a cost-effective and more predictable source of return, he said. ‘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.

‘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.

‘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, lower risk, and generally a smoother overall return profile,’ he said.

Pulling together the threads

In the panel discussion that rounded off the day, facilitator Leigh Köhler, Head of Investment Solutions at Glacier, summarised three 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.
  • Technology can protect investment strategies in a number of ways, two of them being:
    • Data scientists are necessary to analyse, organise and prioritise data to enable investment decision-making criteria.
    • Technology can drive investment platforms.

Click here for more photos from the event.