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You're listening to Strictly Business
Podcast with Lindsay Williams.

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Welcome, and today we are in conversation
with Sumesh Chetty, Portfolio Manager for

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the 91 Quality Capability.

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Right, this is a fairly obvious statement
to make, Sumesh,

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but the first quarter was incredibly
eventful in markets, but not quite as

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eventful as April has been,

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the start of the second quarter.

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Given the moves we've seen in April, with
significant uncertainty and that's an

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understatement as a result of trump's

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policies and the government of national
unity's

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stability coming into question both of
those sort of juxtaposing in a way perhaps

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the more important question is how were
you

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were you in your portfolio's position
going in and

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how are the multi-asset quality funds
holding up has quality come to the fore in

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other words uh thanks lindsay

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great question um but describing it as as
an info you know, you're probably putting

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it very,

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very mildly.

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So we've seen probably the fastest decline
in markets that we've experienced since

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the COVID crisis.

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You know, all other pullbacks have been
far more gradual and have lasted obviously

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a lot longer.

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So I think, you know, given the
environment we're in,

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not only are you facing effectively a
crisis,

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When it comes to tariffs driven by
President Trump,

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I think there's also been a lot of hope in
South Africa that has been dashed by, as

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you've mentioned,

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what's going on with the government of
national unity.

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South African investors obviously have
been incredibly bullish.

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But it's interesting that even though SA
investors have been buying back into the

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equity market, foreign investors haven't
been doing that.

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They've just continued to sell our market.

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And it's obviously gotten worse in this
period of crisis.

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There was an expectation that 2025 would
see much higher growth,

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but we're already seeing negative
revisions or downward revisions to that

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growth number.

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And I think also a little bit of a
backdrop to this is that going into the

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first quarter of 2025,

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you could hardly consider markets as
cheap.

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So there were opportunities, but you
couldn't close your eyes and just buy the

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index.

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And when you think about what we do, you
think about our multi-asset funds, you

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think about the concept of quality,

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managing risk is a big part of it.

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We're focusing on bottom-up opportunities.

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And as a result of that combination of
risk, quality and valuation, we actually

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generated very strong positive returns in
the first quarter.

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Helped a lot by, of course, very strong
returns emerging from the global

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businesses that we hold in the portfolio.

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So, strong quarter for us.

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And it wasn't a quarter in which we had to
make significant changes in our portfolios

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either.

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You know, equity focused, multi-asset
portfolio,

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the Opportunity Fund were very comfortable
with the higher risk budget,

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enabling us to actually maintain risk in
the quarter.

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But taking cognizance of the environment,
obviously.

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And then what we did in the cautious
managed portfolio, which is the bond

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focused multi-asset portfolio,

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which runs at a much lower risk budget.

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We did reduce our global equities
slightly, and we added a bit of US

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inflation-linked bonds to the portfolio.

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I always say that when there's adversity,
there's opportunity when it comes to

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financial markets.

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Have you made any material changes, given
what's happened over the last few weeks

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with the tariffs and all sorts of

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other things as well as sideshows?

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And have you found any sort of mispriced
opportunities because of the irrational

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behaviour or the panicky behaviour of
certain

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other market participants?

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So we haven't made any changes yet.

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We've got our eye on a couple of potential
opportunities.

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Nothing I'm keen to talk about yet because
we haven't pulled the trigger on them.

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But what's interesting is when you say
mispriced opportunities,

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it's not obvious yet that opportunities
are necessarily mispriced.

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So when you think about opportunities,
you've got to balance risk and return.

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You've got to be very careful of making a
knee jerk.

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decision, any kind of knee-jerk reaction,
because investors either tend to, say,

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buy the dip or sell everything.

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And the biggest issue you have right now
is President Trump's tariff policy is

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driving uncertainty.

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And when you think about the
implementation of the policy or even the

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lack of implementation of policy,

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that reversing or pausing of his
decisions, that creates a lot of

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volatility and uncertainty in the market.

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So you can think there's an opportunity
that's mispriced.

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And you could have had that thought
yesterday.

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But by close of business yesterday,

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it's a very different environment that you
would have suddenly found yourself in.

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But, you know, broadly to your question,
we're more likely to add risk here than

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reduce risk here,

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because ultimately, in order to generate
appropriate returns over the long term,

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you know,

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you need to be taking risk when there's
blood on the streets.

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Yeah, it's very interesting, actually,
because I saw a piece the other day which

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suggested that since 1970,

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every time the S&P has gone down by more
than more or 17 percent, it's

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83 percent of the time.

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It recovers within the first year, not
recovers everything, but starts to recover

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and move on from there.

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So you're clearly betting on that
happening again.

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Oh, well, not betting on happening again
yet.

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There will be a recovery.

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Markets over long periods of time go up.

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But remember, there are also periods where
you have strong sideways markets or

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volatile, sorry, sideways markets.

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So you think about the period after the
tech bubble until just after the global

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financial crisis.

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You know, the S&P went almost nowhere.

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And if you think about the length of...

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the crisis that followed the tech bubble
or the downdraft in markets that followed

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the tech bubble that was that was close to
two

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years you know and on the other side it
was skewing perceptions is something like

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the covert crisis where the s p

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500 was peaked to trough went down in i
think just over a month but when you think

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back on covert you actually think that it
was

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that was far far longer but but you are
right on average those markets will go up

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over time we're just saying be careful

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because the risk represents the
opportunity, but you've got to make sure

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that the valuation underpin is there as
well.

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Okay.

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Investors during these times, of course,
they want a safe haven.

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They want a harbour where they can park
their ship right out the storm and off

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they go again into the sunset at some
other time.

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Can multi-asset funds provide a solution
to this?

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Or do investors just need to seek out
cash, fixed income, or even gold, even

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though it's run so hard?

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Yeah.

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So that's...

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that's not as easy a question to answer i
mean clearly multi-asset is probably the

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best proposition for investors

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so gold's been absolutely exceptional
recently you've got gold above 3 100

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announced right now so

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we wouldn't buy it today and if you think
about fixed income you know yields and

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fixed income are going up even

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in the us so they're not behaving the way
you would expect them to

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in a crisis and we'd want to see much
higher yields from here before we got

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interested in in fixed income cash

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cash always provides stability in a
portfolio and you know you hear the saying

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that cash is king and in these
environments of course cash is king

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but it's always easier to get into cash
than to time your exit from cash you're

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making a massive tactical

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allocation decision so when we think about
any kind of safe harbor portfolio we'd

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always advocate

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multi-asset.

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And we'd say that you actually want a
strong focus on quality and you want a

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strong focus on valuations.

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Quality gives you balance sheet and
pricing power, very powerful in an

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uncertain environment.

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And the focus on valuations gives you an
additional level of protection against

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those unexpected shocks.

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And if you think about the environment
we're in right now, I mean, Wednesday

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morning, yesterday, 9th of April,

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our sense was that the market was going to
drift lower.

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And last night.

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President Trump completely changed
direction, saying this was his plan all

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along.

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And now the U.S.

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market was up about 10% after being down
19% peak to trough.

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And what ultimately scares us and what
brings us back, I shouldn't say scares,

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but concerns us,

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and what brings us back to the concept of
quality and multi-asset, we've moved from

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a world where the U.S.

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was imposing tariffs on everyone,
basically a trade war with everyone.

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And that has now morphed into effectively
a trade war with just China.

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And this potentially could deteriorate
further.

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The risk is potentially someone wakes up
and says, hey, you know what,

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we should start taxing services from the
US or the US starts imposing capital

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controls on other nations.

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So you've got to be very careful about the
short-termism that arises from making a

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decision around, hey,

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I need to hold gold or I need to cash, I
need to go to cash.

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The only certainty today is that risk is
higher than three months ago, risk is

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higher than a year ago, growth is going to
slow,

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but you still need an appropriate balance
of exposures.

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Can you imagine if services, US services,
were thrown into the ring?

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Goodness me.

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It doesn't bear thinking about.

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Quality is interesting, because when I
think of quality, I think of it being able

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to navigate the choppy waters,

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another marine reference there.

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Has it behaved as you would have expected
it to, given the recent few weeks?

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of extraordinary times.

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Exactly as we expected it to.

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In fact, I'd say we got a lot of flack for
quality last year when there was a very

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narrow

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market with businesses like Magnificent
Seven, Tesla, Alphabet,

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NVIDIA running hard.

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And there was this concept of, well,
quality doesn't work, even though you were

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generating these very steady, consistent
returns.

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And that steadiness has can continue to
emerge within the portfolios.

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We're still doing everything that we've
done in the past and we've promised to

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investors.

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But what's happening is the environment is
changing around you.

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And that's when I think the real
appreciation for quality comes to the

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fore.

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Sumesh, thank you very much for your time
as always.

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Sumesh Chetty is a portfolio manager for
the 91 Quality Capability.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors and do not reflect
the policy,

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position or opinion of any other agency,
organisation,

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employer or company associated with
StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
reflective of the position of any other

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entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change, revision, and revision.

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and rethinking at any time.

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Please do not hold us to them in
perpetuity.