HMA February 2021 Newsletter

A note from the advisors at HMA

Dear Clients

The year has had an eventful start, but the overall theme remains positive for investors.

As at 23 February 2021, the JSE All-Share Index was more than 10% up on the close of 2020. This continues to be the result of “risk-on”, with global investors having a higher risk tolerance than last year.

Our collective experience of 2021 is likely to remain dominated by Covid-19, with the speed of vaccine roll-out being a major challenge for all countries.

Tragically, on Monday, America’s Covid-19 death toll topped 500 000, which equates to the same number of Americans killed in both World Wars and Vietnam combined. In South Africa, we are bracing for a possible third wave as winter approaches.

The pandemic has been a story of fear, grief, and hope. But as time passes, there is more reason for hope than fear. The 15th of February 2021 marked a moment when there had been more Covid-19 vaccine injections in the world than there had been infections.

While the world tackles Covid-19, the ominous realities of Climate Change have made their way to the top of global agendas. The US has returned to the Paris Agreement and there is renewed commitment to global co-operation to combat Climate Change. Solutions remain fiercely debated, but a unified approach will result in greater innovation and action. Meanwhile, NASA has landed a new rover on Mars named Perseverance. If you have not yet seen the dramatic footage of the landing, it is well worth watching.

On 26 January, a little-known company named Gamestop was the single most traded stock in America, with the share price rising to $350 off a base of just $20 a few months prior. It was the result of a vigilante-style buying frenzy by users of a social media platform. For the most part, these retail traders intended to drive home losses for the big hedge funds who had bet against the company.

The Gamestop saga was sensational for several reasons, but it has also highlighted the trend towards “retail trading”, individuals who trade using their own money and generally not as their primary means of making a living. This is similar to how many people have started to trade Bitcoin, which has once again become a hot topic. A number of clients have asked if they should consider investing in Bitcoin. Our view is that while cryptocurrencies are likely to play a role in the future, at present they remain “off the charts” volatile and thus inappropriate for most investment portfolios. Amy Arnott, analyst at Morningstar, made the following concluding remarks in an article about including Bitcoin in your investment portfolio:

“Overall, I’m skeptical about the case for bitcoin as an investment asset. Its popularity with momentum investors and speculative buyers makes it prone to pricing bubbles that will eventually burst. It’s also nearly impossible to pin down what its underlying value should be. As mainstream investors increasingly embrace bitcoin, its value as a diversification tool is diminishing; as a result, there’s no guarantee that adding bitcoin will improve a portfolio’s risk-adjusted returns, especially to the same extent it did in the past.”

The following chart demonstrates the volatility of Bitcoin

(red line) compared to Emerging Market currencies (blue

line) over the past 5 years. Karin Anderson and Benjamin

Joseph of Morningstar say that, “Investing in bitcoin

makes investing in emerging-markets currencies look like

a safe haven.”

As always, thank you for trusting us with your investments.

Kind regards

The Team at HMA

Market movements to end January 2021

Markets	1 Month	1 Year	5 Years
Local Equity JSE All Share Index (ALSI)	5,21%	13,92%	8,10%
Local Property Listed Property Index (SAPY)	-3,21%	-34,13%	-8,46%
Local Bonds All Bond Index (SAPY)	0,71%	8,49%	9,61%
Local Cash STeFI Composite Index	0,29%	5,12%	6,92%
Global Equity MSCI World Equity	2,62%	18,37%	12,23%