• Stonewood AM

A Tale of Two Black Swans

by James Twidale

Source: coinbureau

This update will be broken up into a few segments. The segments should make it easier for different readers to get the most out of our newsletter and review. For those wanting a quick overview of market performance and our high-level views you can read the following sections:

For those wanting an insight into the current portfolio positioning and commentary please refer to:

And finally, those wanting a deeper dive into our thinking and the things we are grappling with at the moment you can read the two Manager Views pieces:

There is something in this newsletter for everyone and we hope you enjoy it.


Download PDF version below:

SAM - Newsletter (May 2020)pdf

Executive Summary

2020 has already been a year for the record books. We have seen two “Black Swan” events with COVID-19 and Oil and all of this in the first quarter. Markets have been rattled and unemployment has skyrocketed.


You are more than likely reading this at home due to lockdown and no one can predict how this will play out socially, politically or economically with any conviction.

Although we believe that this shall pass the impacts of this all are very uncertain at this point.


Markets across the globe have fallen precipitously only to see a very strong rebound off the lows. We have also witnessed unprecedented economic support and stimulus from central banks and governments across the globe, unprecedented in terms of both speed and magnitude. This prompt action could probably be used to explain the markets rebound in the past few weeks.


We are very grateful to have gone into 2020 with well-diversified portfolios; they have performed well and allowed us to avoid panic or reactionary portfolio sales. We believe that the ability to rebalance into a market pullback is one of the very reasons why diversification and rebalancing are key to the portfolios long term risk-adjusted returns, systematically avoiding having to sell low and buy high.


Of course, due to the nature and magnitude of the events unfolding around us we need to keep sanity, constantly checking our processes, positions and assumptions.

At the time of writing, we are concerned that equity markets and economic fundamentals have potentially diverged away from one another and as result equity valuations in some geographies may not offer the forward-looking risk-adjusted returns modeled originally in our capital market assumptions.


As such we are cautiously watching the macro-economic backdrop and asset valuations to try and determine if our strategic asset models need to be reviewed. At this stage, no portfolio changes have been made in this regard, but our team continue to interrogate our assumptions and the data emerging globally from this unique environment.


For further information on the above read on and enjoy the manager views toward the end of the newsletter.

A New Chapter

The end of the first quarter of 2020 marks our first quarter trading as Stonewood Asset Management (Pty) Ltd. The decision to change our name from 1st Fusion Asset Management (Pty) Ltd came about as a result of a change in ownership and a decision to join the Stonewood group of companies.

The DNA, investment philosophy and structures of 1st Fusion remain the same and for existing investors, they will notice no change other than a change in our logos and colour schemes. That said, we are proud of our association with the Stonewood Group and will grow from strength to strength in conjunction with a local and offshore management team that share our views on money management and investment selection. We look forward to the journey ahead.


We remain firm in our commitments to existing clients and partners. Over time, we believe this will add to our value proposition improving investor outcomes which are first prize in our line of work. To those unaware of the change we are happy to answer any questions that you may have and look forward to interacting with all investors.

Manager Views

We have been spending a lot of time cooped up in our homes thinking about what is happening in the world and how this will impact markets going forward.


The best outcome of this thinking would be that nothing has really changed in terms of capital market assumptions and expectations and that the current COVID-19 and Oil Crash are simply blips on the radar screen and will reflect as nothing more than a “Flash Crash” type event in the random walk of long term investment outcomes.


If this is the case then the current portfolio construction, asset allocations and frameworks remain valid. Long term performance expectations would remain in the same ballpark as they did 4 months ago and we can focus on making sure we stick to our strategy and ensure the portfolios are being implemented in the most efficient way possible to harvest the mean reversion that this volatility event has provided us.


We do however have to play devil's advocate with ourselves and sanity check our thinking and assumptions to ensure we are not falling into the trap of believing our own narratives. So, 'Valuations Seem Off' and 'Have Markets Recovered' are insights into the things we are currently thinking about and grappling with.


Note: None of the views expressed are a change of our current view or portfolio construction but rather just giving you some insight into the current state of the world and the things we are thinking hard about.

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