2020 was, by any measure, a year like no other. From an investment perspective, it was a time that will be remembered for its extreme volatility and wild market fluctuations. As South Africa’s experience of the Covid-19 pandemic passed the one-year mark, investment experts now find themselves reflecting on what the crisis has brought so far, and what long-term opportunities can be capitalised on.

Increased investment risk, worldwide

‘The biggest thing we’re seeing now is increased risk in investment markets generally – and a large chunk of that risk is due to volatility,’ said Thabo Ncalo, Head of the Investment Strategy Team at ‎Old Mutual Limited during the 2021 Old Mutual SuperFund Summit held in March this year. ‘Just look at where markets were at the start of the pandemic and where we are now.’

He pointed to the example of the S&P500, the index that measures the stock-market performance of 500 large listed US companies. That index opened at 3 300 points in mid February 2020 and fell all the way to 2 300 points a month later. By April 2021 it was already much higher again – at 4 100 points.

Counting the cost of Covid

As can be expected, Covid-19 continues to be an important factor in world economies and its impact on retirement funds was high on the agenda at the SuperFund Summit.

As Old Mutual Corporate Managing Director Prabashini Moodley remarked at the opening of the event, ‘I don’t believe there is a single employee, group or family that has escaped the devastation of Covid-19.’ SuperFund Chairperson Bertie van Wyk further noted that the crisis would ‘go down in history as one of the most challenging for people and businesses in South Africa and across the world’.

Ncalo doesn’t believe for a moment that we’ve seen the end of the disruption caused by the coronavirus pandemic. ‘These unexpected black swan events are going to continue to bring incredible volatility to the markets,’ he said. ‘How you manage your portfolio and your long-term investment strategy is going to be key in how you protect yourself from it.’

Like most retirement funds, SuperFund’s underlying investments are closely linked to local markets. At the end of February 2020 the JSE was at 45 000 points before collapsing all the way to 34 000 points. By March 2021 it was back up at 60 000 points. Ncalo says, ‘This kind of volatility is important from an investment risk perspective. If you’d left your job in February 2020, you’d be living with a totally different pension pay-out than if you had left in March 2021.’

Climate change brings long-term risk

As more than one SuperFund Summit speaker noted, Covid-19 was a sudden, dramatic shock to the system. Climate change, on the other hand, is more of a slow burn, but its impacts are likely to be even more severe.

‘The more we see these extraordinary climate change events – physical events, like increased instances of flooding or fires – the more we’re going to end up with volatile markets,’ Ncalo said. He calls himself ‘a big climate champion’ and believes, for example, that the transition out of coal and into new sources of energy is going to present real opportunities.

‘The world has changed,’ said Ncalo. ‘I think we live in a world now where risk is a lot broader than simple, standard market deviations. Risk now has a lot more external factors that influence the outcomes of your investment portfolio.’

Investment opportunities after the coronavirus

Risk brings the promise of reward – or, in investment terms, returns. Like his fellow Old Mutual SuperFund Summit panellists, Ncalo sees plenty of opportunity, despite (or because of) the volatile markets.

‘Work from home, for example, has become a sector theme. Companies like Zoom, Netflix and even DocuSign in the US have become successful. Within Naspers you have Superbalist and Takealot. The world has changed, and it’s about how you capture the new opportunities those changes present.’

Infrastructure investment is another key theme for the South African government and it’s one that Ncalo and his colleagues at Old Mutual will continue to drive.

Risk and volatility can be scary when you’re caught in the middle of it – as anybody who experienced the ups and dramatic downs of 2020 could tell you. Yet Ncalo is upbeat: ‘Yes, we live in a new world, but it’s a great new world in terms of the way we think. The pace of change has accelerated, and we’re going to see a lot of new ideas and opportunities coming up.’