Harold Strydom 
Investment Strategist and Portfolio Manager


Welcome to the new decade! Investors, in general, had an extremely prosperous 2019, more than making good a horrid 2018, which of course was preceded by a stellar 2017 … which started with the post-recession rebound back in 2010.


Markets resemble Test cricket in the sense that you play it session by session. Sometimes runs are flowing, other times you are just blocking and hoping to survive. Last year the runs flowed freely in the major asset classes and, even though it certainly wasn’t in a straight line, the decade produced solid real returns.



Markets are a forward-looking discounting mechanism. The 10-year US Treasury, for example, is currently telling us that United States interest rates are set to average below 2% for the next 10 years and that inflation is dead. The South African 10-year bond, on the other hand, which is yielding around 9% (compared with inflation at 4%), is factoring in the looming downgrade and a continuation of our bleak economic and fiscal picture. The S&P, reaching fresh highs, is pricing in double-digit earnings growth in 2020 and loose monetary policy. Locally, JSE investors are not seeing a turnaround for South Africa Inc. stocks, but resources and some multi-nationals are expected to deliver strong earnings.


This broad high-level interpretation of what the market is pricing in is close to our view of the near-term future. But - and there is always a “but” - what lies beyond this? Shouldn’t we try and look even further ahead to try anticipate the turns the market will take in 2020? If ever there was a year for this, surely with 2020 vision we can do it. Unfortunately we can’t and, fortunately for our clients, we don’t intend to.


What we do intend is to stick to the philosophy and process that has successfully guided the Citadel Asset Management team for more than two decades. Of course we take views, yes we make assumptions in our modelling, but we aim to minimise the risk of the future surprising by constructing well-diversified, valuation-sensitive portfolios. During 2019 we steadily increased cash and protective strategies in solutions where regular withdrawals are required and for investors with conservative risk profiles. And, if the market rally continues deep into 2020 and valuations becomes more stretched, we are likely to de-risk our portfolios even more.


The reality is that we are deep into one of the longest global economic (up) cycles on record. At the end of 2018 the markets feared a recession in 2019; thankfully it did not transpire and we only experienced a cyclical slowdown. The combination of monetary and fiscal policy looks set to extend the current cycle even further, but how strong will the next cyclical upturn prove to be? The law of diminishing returns dictate that the marginal impact of further interest rate cuts and stimulus will be less than previously.


In this Citation, Maarten Ackerman details our view for 2020 in the Economic Outlook article, which highlights our more cautious approach than the consensus out there. We will have to play this year ball by ball, over by over and session by session. Discarding the noise and acting on what is important.

This year, and indeed this decade, will bring many challenges and opportunities, and we look forward to facing them alongside you. We hope you enjoy this edition of the Citation.


Harold Strydom

Investment Strategist and Portfolio Manager: Citadel Asset Management

January 2020


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