Magnus Heystek – Bullish forecasts or just plain bulldust?

This article might also have been headlined: “Unmasking the Realities of Investment Seminars: Are You Getting Objective Advice?” In this eye-opening contribution from the fiercely independent financial advisor Magnus Heystek, he delves into the hidden agenda of fund managers and their flashy presentations. He shows us why these events are more about marketing and sales than providing unbiased investment advice. It focuses on the story of a renowned fund manager’s bullish forecast that turned out to be a colossal failure, leaving trusting investors counting the cost. Heystek explores the consequences of relying on misleading predictions and the importance of holding advisors accountable. A must read.

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By Magnus Heystek*

It’s a feature of the local investment world that fund managers are often trotted out at seminars and webinars in order to provide investors either with reassurance (if already invested) or enticement if still undecided.

Advisors are lured to these events with some tasty snacks and drinks afterwards and even members of the press – though the numbers have declined substantially in recent years, also often attend – even if just to keep a big advertiser happy.

What is not know is that such presentations should be accompanied by a disclaimer that such a presentation is NOT financial advice and that investments carry some risks.

But I very rarely see that disclaimer nowadays and if there is one, it is in tiny print. In short, these seminars/webinars are full-blown marketing/sales events and not one offering objective investment advice.

But they do carry a certain sense of credibility, especially when mainstream media picks up and runs with a story from such an event. Making the front page of an esteemed publication such as the Business Day is a slam-dunk for any fund manager and, no doubt, high fives around the office the next day.

Such was the case when the Old Mutual went countrywide in January/February 2019 presenting its bullish case for the JSE to its worried salesforce who were confronted with increasingly poor performance from their locally focused investment recommendations. The offshore bandwagon, in the meantime, was picking up speed and gathering assets.

This was a time to rally the troops and lift their spirits, or so it seemed from the outside.

Read also: BNC#5: Brutally honest Magnus Heystek: Fresh reasons why you MUST move your money away from South Africa

UBER BULLISH FORECASTS

What followed was an uber-bullish forecast by fund manager Zane Wilson from Old Mutual. It was just guns and roses and boots to the wall, as far as South African equities was concerned.

This storyline must have impressed some sub-editor or even the editor himself, but the next day Business Day ran with this story as its front page lead:

The article dealt at length and in great detail just how cheap SA equities were and how they would beat the pants off global markets during the next 5 years. This was code for, “Don’t sell your poorly performing assets now. You will miss the upturn.”

In the end, almost 5 years later, the forecasts could not be more wrong.

I listened to some broadcasts on the radio that afternoon on the Bruce Whitfield show which ran the story as “Expect SA equities to be the best in the world over 5 years,” or something in that vein.

Just by coincidence Old Mutual happened to be the sponsor of that particular radio show.

When I saw the headline in the BD of the next day and having read the article several times, I thought to myself: this is one for the keep-to-use-at-a-later-stage file.

As an aside—I have many such articles as I tend to file outrageous forecasts/statements about investment markets and such. They make for great and entertaining reading years later. Most of them turn out to incorrect or even plain dead wrong.

The end of the 5-year period OM was referring to is just around the corner, and it’s not too soon to evaluate the bullish forecast OM and Wilson made. In fact, the eventual outcome could not have been more different from the one forecast. Over the 5 years or so since the forecast was made, the JSE and the Old Mutual equity funds were just about the worst in the world when compared to global markets. Even a short-lived bounce in performance due to Covid-19 and the Russian invasion of Ukraine from April 2020 to April 2022, which boosted commodities for a brief period, was not strong enough to repair SA Inc’s faltering growth trajectory. Year to date it is again one of the worst markets in the world, and over one year, stone last.

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And for being one of the top, if not the top performing equity market in the world, that is a bold claim. Which it was when it was made, in my opinion.

I used the Old Mutual Investors fund as a gauge of performance for SA Inc., seeing that it’s the largest SA-equity-exposed fund in the OM stable with about R12bn under management. Not only was it beaten to pulp in the performance stakes, but it also couldn’t even match the inflation rate over the 5-year period. See here table of returns comparing the OM Investors fund with several popular global equity funds available on all investment platforms in SA.

I think such an article needs a follow-up from BD as a service to its readers to pose some uncomfortable questions to OM and its fund managers. Many advisors, no doubt, used these bullish pronouncements by OM – aided and abetted by the BD headline – to entice fresh investments into the fund, with disastrous results.

Now I can understand that forecasts are forecasts and always come with a disclaimer, but to be so bold and confident and get it so wrong does require some kind of comment from OM. After all, many other advisors and fund managers would have disagreed with their view and the outcomes have been infinitely more rewarding.

Local fund managers are, in my view, guilty of defending their “book” come what may. For instance, when the global credit agencies started downgrading SA’s debt from investment grade to junk status ultimately, SA investors were often told on various platforms that the effects of these downgrades  were “already priced in.” Well, it wasn’t, and the outflows out of our bond and equity markets have been consistent and horrendous since then.

Read also: Magnus Heystek explains why he’s avoiding SA property investments like a modern plague

Same with the greylisting earlier this year. I’ve read many reports by various fund managers that it’s “not going to be a problem” or “it’s already priced in”. NinetyOne was one of the few fund houses that did not take this view and warned its investing public that it would have a long-term effect if not resolved soon. And that is precisely what is happening in global markets now. Over the past 6 months, the JSE has been one of the worst-performing stock markets in the world, while the rand and the Turkish Lira have been battling it out for worst currencies over the past year.

Usually, when the rand/JSE/bond markets go through some periods of turbulence, it tends to be an emerging markets thing. This time around the facts points otherwise and the sell offs are down to own goals and very much idiosyncratic features.

And it can get worse. The SA Reserve Bank seems to have broken rank and entered the realm of politics by warning that sanctions imposed by the west and the loss of AGOA benefits could be disastrous for the country and currency.

Business Day correctly reported that this is a warning that cannot – and should not – be taken lightly.

And that means having a serious discussion with your investment advisor, embedded or not, and asking the question: “Am I invested in the right asset classes to protect myself from such a potential calamity?”

And if the answer is that “there is nothing to worry about”,  then it’s time to fire your advisor.

*Magnus Heystek is investment director at Brenthurst Wealth. Follow him on Twitter @magnusheystek.