Why active fund managers are more important than ever before for South Africans investing globally

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Active Fund Managers Poised for New Era of Opportunity Amid Changing Investment Landscape

The investment industry is entering a new era of opportunity for active global fund managers, according to Ross Yammin, Global Equity Analyst at Laurium Capital UK. This shift contrasts sharply with the period following the global financial crisis, during which many active fund managers struggled to outperform global passive indices.

“The low interest rate environment which the market experienced post the financial crisis until March of 2022 really drove passive performance,” explained Yammin. “It was a tide which lifted all boats, and so the importance of fundamentals was less relevant with the cost of money being so close to zero.”

With the market now adjusting to a higher rate environment, Yammin believes that fundamentals have regained their significance, creating a conducive environment for active stock pickers to excel. Laurium Capital has been building its global equity capability since December 2018 and has delivered impressive returns despite the challenging environment for active managers.

The AI Revolution and Market Concentration

Since March 2022, the investment landscape has undergone significant changes. In addition to higher interest rates, the rise of AI has spurred a substantial performance increase in seven major technology companies, known as the Magnificent Seven. This has led to a significant concentration in most popular indices, which are weighted by market capitalisation. Consequently, a larger portion of these indices is now invested in a handful of companies, reducing their diversification.

“This means these indices are far less diversified than they have been in the past,” Yammin noted. “If performance is to broaden out away from the Magnificent Seven, an active manager has the ability to pivot quickly towards other opportunities.”

This ability to adapt quickly is a major advantage in an environment where popular indices like the S&P 500 have approximately 30% of the index comprised of the Magnificent Seven. Yammin emphasized that there are numerous growth opportunities in geographies such as China, the Eurozone, and the United Kingdom, which have been largely overlooked as passive money has flowed into a few U.S. stocks.

Opportunities Beyond the Magnificent Seven

Yammin highlighted Anglo-Swedish company AstraZeneca as an example of an undervalued share that Laurium Capital has identified. AstraZeneca is growing its earnings in the low double digits and is trading at a 17x forward PE ratio, compared to the MSCI World index’s 20x forward PE ratio with slower earnings growth.

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