Investors are operating in an environment shaped by competing forces: rising geopolitical fragmentation and structural economic shifts on the one hand, and the transformative potential of artificial intelligence on the other, according to Stonehage Fleming Investment Management.
The firm argues that this tension is not unusual. Periods of disruption have often coincided with significant innovation. The challenge for investors, in its view, is therefore not whether to participate, but how to do so without taking on risks that could result in permanent capital loss.
At the centre of this approach, Stonehage Fleming draws a distinction between a strong business and a sound investment – particularly where elevated valuations and crowded positioning increase the risk of mispricing.
A key principle underpinning this view is the uneven nature of losses and gains.
A 10% decline requires more than an 11% gain to recover, while a 20% fall needs a 25% rebound to break even. As losses deepen, the recovery required becomes more demanding.
Lehani Marais, a partner in the investment management division, says this is why avoiding “landmines” – defined as permanent impairments of capital – remains central to portfolio construction.
“When we talk about ‘landmines’, we’re not referring to a disappointing year or two, but to the permanent loss of capital,” she says. “You don’t need to be the hero every year. Being consistently good, occasionally great, and never awful can be more effective over time.”
Conviction and overconfidence are not the same
The firm also highlights behavioural risk, particularly in environments where strong narratives can create a sense of certainty.
Stonehage Fleming argues that many investment missteps stem not from a lack of information, but from misplaced confidence in what is assumed to be known.
Chief investment officer Bryn Hatty notes that even highly experienced investors tend to avoid making precise market calls.
“The real value lies in remaining invested for the long term, allowing compounding to drive growth while building portfolios that are robust to shocks,” he says.
In this context, resilience matters as much as return.
When market structure becomes a risk
Another area of focus is the growing concentration in equity markets.
A relatively small number of large companies – particularly those linked to AI and technology themes – have accounted for a significant share of recent returns. While this has supported index performance, it also introduces a less visible risk.
Because market-cap-weighted indices allocate more capital to larger constituents, investors may find themselves increasingly exposed to the same set of companies, often at the point where expectations are already high.
Hatty says this reinforces the need for deliberate portfolio construction, including regular reassessment of exposures. In some cases, this has led to the use of equal-weighted approaches to moderate concentration risk within passive allocations.
Diversification as a deliberate choice
For South African investors, global diversification remains a key tool – but the rationale matters.
Stonehage Fleming cautions against framing offshore exposure primarily as a response to currency movements. Instead, the focus should be on reducing country-specific risk and accessing a broader range of return drivers.
Reyneke van Wyk, the head of investment management South Africa, says diversification should be implemented with clear intent.
“Effective risk diversification means doing so with the intent to diversify sources of return,” she says. “Investors should stay the course in the appropriate portfolio, accessing global opportunities for the right reasons rather than reacting to short-term rand volatility.”
Taken together, these elements point to a more measured definition of investment success.
Rather than relying on bold positioning, Stonehage Fleming’s approach emphasises consistency, patience, and the ability to avoid significant setbacks.
In an environment where uncertainty is likely to persist, preserving capital through difficult periods may prove more valuable than capturing every phase of market upside – particularly when compounded over time.
Disclaimer: This article does not constitute financial or investment advice. Investors should consult their financial adviser for advice tailored to their personal circumstances.
