Rates of Return

Portfolios have now locked in the performance numbers for 2008. Funds were just wrapping up a little window-dressing of holdings at year end, re-balancing before illiquidity forces funds to hold tight, and watching for any bad news from around the world. Portfolio managers around the world will look back glumly at the hammering most portfolios took in the second half of 2008, and look forward to 2009 with gritted teeth. The major indexes flip through the story: S&P 500, Wilshire 5000, Dax, KOSPI, NIKKEI, ALSI 40, FTSE100, BOVESPA, DJSI Global. Only Tunisia was up [10%] for the year – nice work from North Africa! See Reuters FACTBOX-Final major global market losses and gains for 2008

Forecasts trend to the negative, including some that leave one cold, like today’s Factories hit by worst slump in 28 years. Moneyweb’s dry humour delivered the understatement of the year: JSE vs world markets in 2008 - It doesn't look pretty [!]. Large cap growth index tracker Vanguard FTSE Social Index Inv (MUTF:VFTSX)was down in the mid $0% range. One of my favourite small-cap growth equity mutual funds run from Boston by Mat Patsky, Winslow Green Growth(MUTF:WGGFX), was hit 62% for the year. The glass half-full: well, unlike another great fund, at least it is still standing in 2009… See Matt's comments on green investing from Feb when he was ooking forward to poitive net inflows. "When this bear market ends, be prepared for a fast and furious partial recovery," S&P's chief investment strategist Sam Stovall writes in his 2009 outlook. Historically, the S&P 500 has recouped, on average, 33% of its bear market losses 40 days after a bottom.

But at last the annus horribilis for money managers around the world has ended. Being one comfortable as an outlier, I am happy to see the glass half-full, but making the right bets and managing the volatility will be harder.

In Africa’s money management capital, Cape Town [CPT], New Year’s Day 2009 was sunshiny and blue-skied, and well-celebrated as usual, as the NYT reported. The beaches were full, and the Table Mountain cableway had a 600m queue of patient tourists mostly pale, but grilling nicely in the full African sun. You could hear the sizzling. Spreadsheets covered in red have mercifully been archived with just the year-end report backs to pension fund trustees and financial advisors to come before 2008 can be boxed as “the year of the market meltdown”. The pendulum will no doubt swing to over-regulation, and we may look forward to the finesse of the sledgehammer of politicians trying to predict and protect market players from themselves, at least until the next crisis resulting from too much regulation.

The summer weather at the bottom end of Africa and the usual European-style year-end shutdown of the holiday season eases the pressure and keeps one sane. In CPT the type-A investment professionals will be out early or late, on MTB trails in Tokai, running Table Mountain [I bumped into the CEO of Investec Asset Management, one of the big four, the other day]. Water options include wind- or kite-surfing on Sunset or surfskiing from Three Anchor Bay. As one money manager in San Francisco [CPT’s American twin city] commented, at least an hour of exercise per day is necessary to blow off the pressure of needing to be right with major decisions every working day. The major national business dailies' [Business Report and Business Day, as well as FT distribution] print editions are closed through Wed 7 Jan as a reflection of how things slow down. Just the web and the informed few in conversation in business class on aeroplanes or in Plettenburg Bay and similar holidy spots keep the pulse of business conversation throbbing. The success of the SA cricket team in Australia, up 2-0 in the 3 Test series and winning in Australia for the first time has lifted the mood many. A miracle comeback in Perth and a beyond miracle comeback in Melbourne have written the players as legends. If only more people were at their workstations so we could remind our Australian colleagues of the arrogance the past 13 years or so… The final test in Sydney offers the chance to go no.1 in ICB rankings.

Hugh Wheelan put out a thoughtful piece in Responsible-Investor.com just before Christmas, reflecting some of the conversations we have been having about the impact of the meltdown and ESG investment research as ongoing concern and business unit [see What’s the future for ESG broker research? SRI team cuts and the merger of EAI and PRI demand clear future research incentives by Hugh Wheelan, December 22nd, 2008] “a worrying development for those concerned that ESG research, still a relatively new and growing discipline, could become ‘mainstreamed’ for cost rather than content reasons”. Ironically, the cuts at Deutsche Bank ESG research in London have come as calls for more corporate governance research has flooded in.

I expect more testing of where the sustainability meta-theme intersects with “business as usual” in 2009. My philosophy that sustainability is a meta-theme, over-arching and impacting all facets of economic life on this planet, implies I am less perturbed by the coming or going of specific business units with “sustainability” tags. Like many others, my BS filter often blinks red when talking with so-called experts in sustainability, or some initiatives, or companies spinning the same old stuff through the “greenwashing” cycle [see Corpwatch's bimonthly greenwash awards]. A comment in an excellent Fast Company article from “artiste” architect Steven Holl rings true in my work as an investment architect. Some of the sustainability stuff is ugly!

One facet of his work that he actually downplays, however, is his interest in sustainable architecture. "I'm sorry to say, but 85% of so-called green firms make some of the ugliest buildings that were ever made," he says, in a typical excess of candor. "So for God's sake, I don't want to be categorized with them."

It is hard to put a value on a life, but the ROR for one woman’s life is high. The biggest news in the city was the passing of a political legend in SA, Helen Suzman. Ms Suzman was renowned for many years in the whites-only SA parliament as the sole representative of the opposition Liberal Party standing up to the National Party and the apartheid machine from 1961-1973, at least from the inside. The fact that she was female, English-speaking and Jewish must have caused endless indigestion for chauvinistic Afrikaners dreaming of a great white nation. In one of those ironies, in seeking to break down racial barriers Ms Suzman represented Houghton, an elite enclave in Johannesburg’s leafy suburbs, not far from where I enjoyed some years in the mid-1990’s, and an excellent fitness center at Old Eds. I never had the pleasure of meeting her, but her lifetime journey and steadfast integrity to her cause remains a remarkable life lived well. 91 good years. Beyond her signal achievements in life, two parallels to the conceptual and contextual work in sustainability + investment come to mind: firstly, the dogged nature required moving forward with the expectation of being a lonely traveler on the journey, and secondly, respect of her rivals. Her former opponents were forthright in their praise in media coverage, although maybe all of them mellow with age, knowing their fight are now decades old, and as older people, they are more collegial than competitive. Major South Africans have been forthright in their praise, and fittingly the icon on democratic South Africa offers the simplest and best admonition: Nelson Mandela described her as “a remarkable South African woman”. South African flags will fly at half-mast on Sunday January 4th 2009 in honour of anti-apartheid veteran Helen Suzman.