Drikus Combrinck’s investing strategy at the start of 2023
Capicraft founder and CEO Drikus Combrinck has shared his outlook for 2023 and the company’s investment strategy at the start of the year.
Capicraft’s local and international portfolios outperformed the market in 2022, with the Capicraft Global Creator fund doing 18.9% better than the MSCI World Index.
Combrinck was also one of South Africa’s top stock pickers in 2022 and topped the list when you look at the two-year performance.
It raises the question of his outlook for the year and his investment strategy in this environment.
Combrinck expects inflation to fall, but he disagrees with the market’s view that inflation will remain low. “In this cycle, interest rates may still move higher – and stay higher for longer,” he said.
He added that the greening of the economy can be very inflationary and will require even more fossil fuels.
His view is that it is not good advice to invest based on the short-term consensus of a ‘Fed pivot.’
“5-year inflation-linked US government bonds are currently pricing in just 2.2% inflation. The market is simply not positioned for a second move of higher inflation over the medium term,” he said.
Contrary to many analysts, Combrinck also believes that technology stocks remain overpriced and that their profit margins are unsustainably high.
Capicraft’s investment strategy
With the current global economic market conditions in mind, Capicraft positioned itself as follows at the beginning of 2023.
- Fairly defensive.
- Cautious about interest rate-sensitive sectors.
- Government bonds from developed countries are still too expensive for them.
- They still don’t hold any of the technology giants.
- Land, gold, and raw materials, also known as real assets, are core holdings in their portfolios.
- They increasingly prefer selected emerging markets over developed markets.
- They focus on micro trends over macro trends.
- They buy assets in individual or special situation events where investment success (or not) has little to do with the macroeconomy.
“Our portfolio positioning and long-term thesis should not be confused with a forecast,” Combrinck explained.
“To predict is to place certainty on a single or narrow outcome. A well-constructed investment portfolio requires much more humility.”
Instead, Capicraft weighs up different possible scenarios against what the market is pricing in.
- They seek assets where expectations priced in by the market are too low. It means if they are wrong, the damage is limited.
- They build portfolios where assets are not only uncorrelated with each other, but also don’t expect much from each other. It means if one asset falls, other assets in the portfolio can still perform well.
“Predicting a single year’s return is not exactly productive. Our short-term expectations are quite open,” he said.
“What we do expect is that our strategy will yield better than expected returns over the long term.”
