The Glacier AI Flexible Fund of Funds - Glacier Insights

The Glacier AI Flexible Fund of Funds
By Francis Marais, Head of Glacier Research

The efficient market hypothesis (EMH) states that current prices should reflect all available
(public) information, which by definition also includes discounted future expectations, at least as
per the semi-strong form first defined by Fama in his seminal 1970 paper. Plainly, according to this
theory, abnormal returns (returns in excess of expected returns) are expected to be zero.

Since we’ve all become professional “Zoomers” lately, rational investors would expect Zoom as a
company to do really well, as companies scramble to take out corporate licences, shed their
archaic methods of conducting business and step into the 21st century (finally!). The only problem
with this is - if I can deduce that, then many other people around the world would also be able to
arrive at the same conclusion, i.e. buy the equity, which will eventually drive up the share price until
we reach an equilibrium where these future increased earnings expectations are fully reflected in
today’s share price. As an example of this, see the below share price graph.

Source: Nui, 2020, retrieved from https://www.nasdaq.com/articles/the-sec-really-wants-investors-

to-stop-buying-the-wrong-zoom-stock-2020-03-27

Those investors who were shareholders before February 2020 made some very handsome
returns - at one point in excess of 1500% - and as at March 26, an eye-watering return of 845.5%.
One would argue these are abnormal returns and clearly the efficient market hypothesis is broken.
You would be right; however, the reason might surprise you.

The problem is that the share price above is not for the same ZOOM you and I have become very
familiar with lately, welcoming it into our homes and broadcasting to the rest of the world our very
specific and sometimes quirky interior design tastes. It is in fact for a completely different
company, Zoom Technologies, trading in the over-the-counter (OTC) market with ticker ZOOM, as
opposed to the real Zoom Video Communications (the one we’re all using) trading on the Nasdaq
with ticker ZM.

Clearly investors are not rational, failing to do even one of the most elementary of due diligences
or analysis. This is also not the first time something like this has happened, so the anomaly isn’t
even that random and seems to happen more frequently than one would assume. For those who
are interested see the paper by Michael S. Rashes (Rashes, 2001), published as far back as
October 2001. One of the fundamental underlying assumptions of the EMH is that investors should
behave in a rational manner, or as Fama would have said in his 1965 papers, as “intelligent
investors”. Investors today get caught up in short-term news cycles, in hype and in panic and they
overreact (sometimes they also underreact).

So how does one avoid a complete hijack of one’s amygdala?

Quite simply, by staying the course and avoiding any such short-term knee-jerk reactions. Easier
said than done perhaps. Another, possibly easier option, could be to outsource some of your
investment decision-making to an intelligence that does not have an amygdala - more commonly
known as artificial intelligence.

The Glacier AI Flexible Fund of Funds is one such option, delivering impressive returns during a
quarter that had significant amounts of volatility and a very intense news cycle, enough to make
even the most seasoned investment professionals panic and overreact.

For the quarter as at 31 March 2020, the Fund was down only 6.17%, outperforming the JSE All
Share Index (J203T), that was down in excess of 20%, the South African All Bond Index (ALBI) that
was down 8.72% and the average fund in its category (SA Multi Asset Flexible) that was down
12.84%. Over a one-year period the performance is equally impressive, delivering a return of only -
1.27% compared to the JSE (-18.42%), the ALBI (-2.99%) and its category average (-10.15%)
respectively.

The Fund suffered lower maximum drawdowns when compared to the JSE, ALBI and the category

average over the quarter, with significantly lower levels of volatility when compared to South
African equities.

Keeping cool under pressure, the asset allocation of the Fund remained relatively stable over the
last three months, preferring to have roughly equal exposure to both equities (47%) and bonds
(50%). Within local equities, the Fund was positioned towards more resources exposure (19%),
followed by industrials (11%), with financials making up the balance at 9%. Globally, equity
exposure was exclusively towards the S&P 500 at 9%, with the balance of offshore assets being
invested in global bonds. The offshore exposure, and in particular the relatively high exposure to
foreign bonds, contributed strongly to performance.

As at 31 March 2020 the Fund’s asset allocation was:

Source: Sanlam Global Investment Solutions & Glacier by Sanlam

We look forward to the next quarter and will keenly watch how the artificial intelligence machines
navigate the upcoming few months. Ignorant of time, noise and emotions and utilising a different
concept of information, the Fund provides the perfect opportunity to diversify conventional
portfolios.

We thank you for your continued support, and together with our investors, look forward to
continuing to pioneer a new path in the South African investment landscape.

Glacier Financial Solutions (Pty) Ltd and Sanlam Investment Management (Pty) Ltd are licensed financial services providers

Glacier Management Company (RF) (Pty) Ltd is a registered and approved Manager in Collective Investment Schemes

 Image not found or type unknown       Francis Marais
                                       Francis started his career at Sanlam Employee Benefits, before spending four years as the
                                       operations and research manager at a Category II Discretionary FSP. He joined the Glacier
                                       Research team in March 2015 and was the senior research and investment analyst, before
                                       taking up the role as head of Glacier Research in October 2018. Francis is a CFA® charter
                                       holder and holds a Bachelor of Commerce (Honours) degree in Financial Analysis from the
                                       University of Stellenbosch.

         This document is intended for use by clients, alongside their financial intermediaries. The information in this document is
         provided for information purposes only and should not be construed as the rendering of advice to clients. Although we have taken
         reasonable steps to ensure the accuracy of the information, neither Sanlam nor any of its subsidiaries accept any liability whatsoever
         for any direct, indirect or consequential loss arising from the use of, or reliance in any manner on the information provided in this
         document. For professional advice, please speak to your financial intermediary.

         Glacier Financial Solutions (Pty) Ltd.

         A member of the Sanlam Group
         Private Bag X5 | Tyger Valley 7536 | Email client.services@glacier.co.za | Tel +27 21 917 9002 / 0860 452 364 | Fax +27 21 947 9210 |
         Web www.glacier.co.za | Reg No 1999/025360/07
         Licensed Financial Services Provider | Glacier Financial Solutions (Pty) Ltd. is also a Licensed Discretionary Financial Services
         Provider FSP 770, trading as Glacier Invest | Sanlam Multi-Manager International (Pty) Ltd. | A member of the Sanlam Group

         Private Bag X8 | Tyger Valley 7536 | Tel +27 21 950 2600 | Fax +27 21 950 2126 | Web www.smmi.com *|*Reg No 2002/030939/07
         Licensed Discretionary Financial Services Provider, acting as Juristic Representative under the Glacier Financial Solutions FSP 770
         Glacier International is a division of Sanlam Life Insurance Limited
         Sanlam Life Insurance Ltd. | Email life@sanlam.co.za | Tel + 27 21 916 5000 / 0860 726 526 | Fax +27 21 947 9440
         Reg No 1998/021121/06 | Licensed Financial Services Provider