Slowing Chinese economic activity, accelerating inflation and normalisation after the pandemic are among the major issues informing the decision-making and portfolio positioning of Amplify Investment Partners’ fund managers in 2022.

Speaking at Amplify’s first InTouch Power Hour webcast, managers of Amplify’s funds looked back on industry-beating performances in 2021 and provided insight into their positioning for the year ahead.

The Amplify SCI* Strategic Income Fund  has a scenario-based approach. The most likely currently being consistent progress against the pandemic, a tougher year for risk assets as the growth-liquidity mix begins to worsen, a strong rise in global real rates and modest widening of credit spreads, which should cause a tightening of financial conditions, Nomathibana Matshoba managing director of Terebinth Capital and co-portfolio manager of the Amplify SCI* Strategic Income Fund said. She said Terebinth expects a tough environment for emerging markets.

The fund’s asset allocation is largely in floating rate notes (33%) which should benefit in a rising rate environment, inflation-linked bonds (24%) and fixed rate bonds (21%).

SA bonds were a major contributor to the return profile in the fourth quarter of 2021, she said. The fund continues to outperform South Africa FTSE/JSE All Bond Index (ALBI) at a fraction of the volatility.

The current issues dominating investor discussion include the slowdown in China, which started in Q42021 and rolled into 2022 while the US is strong and Europe is recovering, said Iain Power, CIO of Truffle Asset Management, which manages the Amplify SCI* Wealth Protector Fund.“We are expecting stimulus and rate cuts to put a floor under economic growth,” he said.

Accelerating inflation is starting to become problematic, and central bankers are taking notice, with Europe and the US likely to be pushing up rates this year, Power said. A positive development is that Omicron appears to be heralding the end of the pandemic, he said, and one can expect to see a normalisation of the services part of the economy, with more travel, less spend on goods, and an acceleration of the services side of the economy, for which the fund is positioning itself.

The fund performed well ahead of its benchmark over the last year, with a portfolio structured toward value high yielding shares. The fund’s managers believe that the high valuation growth shares are likely to suffer in an environment of normalising central bank policies, while many high yielding value shares are going to benefit from that environment.

The portfolio has net equity of 34%, and 41% has a rand hedge component. Domestic bonds account for 32%.

Carmen Nel, macro strategist at Matrix Fund Managers, which manages the Amplify SCI* Defensive Balanced Fund and the Amplify SCI* Absolute Fund, said an active approach to asset allocation has succeeded in delivering consistent returns. Both funds returned a net 4.4% over the last quarter, benefitting from increased equity exposure and a weakening exchange rate. Looking at the next 12 months, she said equities are comfortably beating inflation but this growth has moderated and Matrix expects only a modest derating. Bonds will return 11% this year and there are low downside risks, while foreign equity will provide muted returns, and the funds have underweight allocations.

The Amplify SCI* Defensive Balanced Fund positioning reflects 26% equity (19.3% local) and 39.8% SA government bonds. The Amplify SCI* Absolute Fund  has 38% equity (30.1% local) and 31.9% SA government bonds, with inflation-linked bonds in both funds at around 10%.  

Brian Thomas, portfolio manager at Laurium Capital, which manages the Amplify SCI* Balanced Fund said the fund’s performance over the last year, which reflected an increase of 22%, has been particularly pleasing and the fund recorded a strong last quarter.

Big issues going into 2022 include slowing global growth. Fiscal stimulus is almost over, but monetary policy is still fairly accommodative and real rates still negative, which will support markets, Thomas said.

The high equity fund has 49.3% in SA equity, 20.7% in offshore equity and 17.5% in SA bonds, in which it is overweight. It believes the African Eurobonds exposure is a great portfolio diversifier.

Its key positioning is in the global consumer, SA financials, select resources and healthcare.  

The Amplify SCI* Flexible Equity Fund produced a strong 33.5% return over the past year against a 21% SWIX return.

Omri Thomas, portfolio manager at Abax Investments, which manages the fund, said one of the biggest changes the fund has made is a significant increase in bond positioning, as investors are getting an equity risk premium from bonds at the moment. The fund’s managers also think SA equity, selectively, offers value as do SA hybrids. The portfolio currently reflects 54.3% in SA equity and 26.1% SA bonds, up from just 5% a year ago, while total offshore exposure is 7.8%.