Sable Wealth Investment Committee Report: Looking back, planning forward

Macro-economic context

The sudden arrival of inflation in 2022 was followed by a central bank policy reaction that played out in 2023.  We are seeing inflation come under control. During the years of quantitative easing and unprecedented low interest rates, many commentators fretted that the global economy would battle to digest a return to “normal” interest rates. Some tabled dire forecasts. We acknowledge that there is a lag in the effect of higher interest rates, and that the developed economies may still experience a recession, but as time goes on, the likelihood of a severe recession and hard landing seems less.

This is a global comment: individual countries will have their own specific factors to navigate.  

2024, will be a year of important geo-political milestones. Economic challenges and trends highlighted in our previous report will continue to play out. Companies will need to navigate these challenges and opportunities in their quest to provide shareholders with returns that we as investors need to meet our financial planning outcomes. Our team is looking forward to engaging closely with you to test how the changing landscape affects your financial goals, objectives and outcomes. We do not attempt to forecast global economic conditions but can interpret what has happened in the context of what it means for your financial plan.

Equity markets in 2023

It is profoundly positive news that the world economy has been able to cope with higher interest rates – this has answered one of the most worrying questions of our times. Interest rates have returned to a normal range without a deep recession. This, along with many other factors, has been reflected in equity markets around the world, with 2023 providing satisfactory returns to investors.

In the USA, consumers shrugged off higher interest rates, and investors were more optimistic than fearful largely due to exuberance around artificial intelligence. As a result, the S&P 500 rallied 24% in 2023 (after a negative return in 2022). This was led predominantly by the large technology companies, a group dubbed “The Magnificent Seven”.

The broad Eurostoxx 600 index ended the year up 12.6%. Japanese equities, represented by the Nikkei 225, were one of the strongest performers, up 30%. In comparison to the double-digit returns offered elsewhere, the FTSE 100 offered a paltry 2.4% in 2023, once again reminding us of the importance of global diversification.

Bond markets

Cautious investors with significant allocations to bonds as an asset class are able to achieve a positive real return for the first time in over a decade. This is a much healthier state of affairs than the negative real, and even nominal, rates that have been experienced since the 2008 Great Financial Crisis.

Sable Wealth model portfolio commentary

To revise, our portfolios are constructed over a seven-point risk scale incorporating global diversification. The equity component where possible is MSCI world benchmark aware with strong tilts to Value and Small caps and with weaker tilts to Profitability and Low Emissions. We also maintain an emerging market holding constructed with the same tilts in mind. The “tilts” referred to above are backed by strong long-term performance data.

In 2023, with the “Magnificent Seven” driving performance in the USA, our model portfolios underperformed the benchmark, but we remain confident in the long-term positioning, and the diversification away from an expensive sector, that our model portfolios reflect. To clarify, your portfolios do have significant exposure to the global technology sector and the future that they encapsulate but are tilted away from too many eggs in that basket.

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Rising costs and financial planning

In 2023, the cost of living was on the rise and affecting investors at a global level. One of the most significant shocks to household budgets last year was mortgage costs. Our mortgage team has paid close attention to UK mortgage rates and what this means for clients with UK property.

Guidance and advice is critical

Our role as financial advisers is never as important as when there is a serious change to factors that affect our clients’ financial plans and forecast outcomes. The Sable Wealth team will be discussing the impacts of higher mortgage rates and the general increase of living costs with our clients in detail and will revisit models and outcomes to retirement and beyond.

If you find yourself wanting, or needing, to engage with a professional on your financial planning and wealth management needs, Sable Wealth can assist. Please use this opportunity to engage with our advisers and leverage off our collective experience in navigating such challenges. Sable Wealth has a knowledgeable team of mortgage, cross-border and financial planning specialists who can help you find solutions. We can’t turn back the clock, but we can give you suitable options for going forward and give you a clear understanding of the impacts on your financial planning outcomes.

We look forward to providing you with value this year and to strengthening our partnerships.

In these unprecedented times, it’s more important than ever to carefully consider your investment strategy and the risks. Speak to us about financial planning to see how we can create the right solution for your needs. Email wealth@sableinternational.com or give us a call on +27 (0) 21 657 1540 (SA) or +44 (0) 20 7759 7519 (UK).