Market fluctuations may increase the risk of hits and misses, but smart fund managers are learning important lessons from them
It’s not just death and taxes. Uncertainty and volatility have also become certainties you can count on. This has had significant implications for fund management. Sound investment strategies are increasingly about rigorous processes, identifying opportunities and recognising and learning from missteps rather than trying to get it right 100% of the time.
Amplify Investment Partners’ fund managers are less focused on the noise and more on making the right choices – and learning from the wrong ones. As Wessel Joubert, investment analyst at OysterCatcher, which manages the Amplify SCI Equity Fund and the Amplify SCI Managed Equity Retail Hedge Fund, points out, Roger Federer won almost 80% of all the tennis matches he played, yet he won only 54% of the points. “Consistently making the right choices over the long term is what drives sustained top-quartile performance,” Joubert says. “It is increasingly about knowing when to take opportunities and when to hold on when markets dip.”
As with any good player or sports team, the fund’s managers analyse what they got right and wrong. An example is that they recently changed their view on Capitec’s earnings multiple following their investment process, where they model company earnings and dividends four years into the future and determine an exit valuation multiple. “For Capitec we argued that they were a bank and once they reach a certain percentage of the bank sector market share, their valuation multiple should revert towards that of a high-quality South African bank as the growth will slow at that point”. However, Capitec has defied this expectation, for example, by moving into telecommunications with Capitec Connect. Its valuation may need to include some telecommunication market share, some insurance market share, some online gambling market share and some markets that might become more evident in the future. The assumption regarding the valuation multiple should accommodate the longer growth runway, Joubert says.
Justin Hollis, fund manager at Abax Investments, which manages the Amplify SCI Flexible Equity Fund, says successful investing isn’t about being right all the time, but about getting more decisions right than wrong. He says that heightened market volatility has provided ongoing learning experiences, notably in emotional biases, as the dilemma of whether a drop in share price represents a buying or selling opportunity is often clouded by emotional biases. “Loss aversion causes investors to hold onto losing investments too long or sell winners too early. It can also cause excessive conservatism, where investors avoid opportunities even when the risk/reward payoff is favourable.”
When US President Donald Trump’s April 2025 tariffs announcement triggered indiscriminate selling across global stock markets, the fund capitalised on the opportunity to add quality companies trading at compelling valuations, as opposed to panicking and selling a winner to avoid further losses or taking no action. This resulted in a purchase of Capitec, where its fundamentals were unchanged and the risk/reward payoff was compelling. The share has since risen by more than 30%.
There are also examples where the fund retained exposure to businesses after share price declines when in hindsight the correct action would have been to sell at a loss. “Sasol is a relevant example where we misjudged the severity of the challenges faced by the business, resulting in us holding onto the position too long”, he says. This can freeze capital that could be used for another investment.
For the fund, recognising and mitigating loss aversion is crucial for long-term investment success and requires several disciplines. These include being aware of loss aversion as a natural human bias, remaining disciplined and adhering to your investment philosophy and process rather than market sentiment, and thinking long-term by reframing decisions in terms of long-term outcomes and minimising short-term emotional reactions. It remains important to diversify as a diversified portfolio reduces the likelihood of material losses. It goes without saying that an experienced investment team is crucial to success.
Nomathibana Okello, managing director of Terebinth Capital and manager of Amplify SCI Strategic Income Fund and Amplify SCI Diversified Income Retail Hedge Fund, says while the funds’ managers follow a structured investment decision-making process based on sound macroeconomic research and quantitative analysis, they cannot predict the timing of events, and this can influence conviction levels when the market moves against your investment thesis.
Using monetary policy as an example, the funds’ managers listened carefully to Monetary Policy Committee members’ envisioned path for interest rates after the Reserve Bank announced a 3% inflation scenario, and “successfully introduced net receive positions in the hedge fund for later dates, even when the market was convinced that the cutting cycle was over”.
Okello says the lesson is that the constant stress test on the view, while necessary for risk management, can hinder overall conviction levels and position sizing. “As a portfolio manager, I am not sure if the constant doubt and questioning of one’s view and adjustments to portfolio positioning will ever change. This journey is grounded in science and art, and one needs to be comfortable with the risk level in the fund.”
As Joubert says: “In our industry, it is impossible to be 100% correct 100% of the time. The mark of a good fund manager is achieving a hit rate above 50% while recycling capital between different listed companies.”
Hollis agrees, saying that even experienced investors face missteps, “but by learning from past miscalculations, investors can make smarter choices in the future”.
Click here to view unit trusts disclaimers.
Click here to view hedge funds disclaimer.
