I've spent most of my career on the quantitative side of investing, and this question has shaped how I think about equity portfolios. Not just what you hold, but how the decisions get made, and whether the process behind those decisions is built to deliver consistent results over the kind of time horizons that retirement savings demand.

Why consistency is so hard


Generating alpha in any given year isn't actually that unusual. The harder part, and the part that matters for retirement savings built over decades, is doing it consistently. This is where human decision-making runs into some well-documented problems.

Behavioural finance research has shown that even experienced investors are subject to systematic biases. Overconfidence makes us hold losing positions longer than we should, because admitting we were wrong is uncomfortable. Loss aversion pushes us to bank small wins too quickly, cutting our winners short. And recency bias means that whatever happened last quarter tends to carry more weight in our thinking than it probably deserves.

These aren't character flaws, they're how our brains are wired. But in equity markets, where the margin between outperformance and underperformance is often slim, these biases compound over time. The S&P SPIVA scorecard puts some hard numbers behind this: 95% of actively managed South African equity funds underperformed their benchmark over the past ten years. And even among those that do outperform, consistency is rare. For trustees responsible for retirement savings being accumulated over 30 or 40 years, that inconsistency is a real problem.

What we mean by systematic investing

At Prescient Investment Management, our equity process is built to address exactly this. Rather than relying on subjective judgement calls, we invest through a systematic, rules-based framework. The investment research (what drives returns, what signals to respond to, how to manage risk) is done upfront and embedded into the process itself. When the data says to adjust, the portfolio adjusts. When it doesn't, it holds.

The question is then, what these developments mean for the outlook of South African equities as a whole. As a rule of thumb, higher valuations often leave more room for downside return surprises, but valuation alone rarely tells the full story. Elevated multiples can be justified when earnings growth potential remains strong and that balance between value and growth is at the heart of today’s market debate, particularly in the offshore equity market.

This isn't about replacing human thinking with a black box. The ideas behind the models come from real investment insight and rigorous research. The difference is in how those ideas get applied. A systematic process applies them the same way every time, without the emotional noise that tends to creep in when markets get volatile. It doesn't get nervous after a bad week or overexcited after a good one.

The result is a more repeatable source of alpha. And that repeatability turns out to matter a great deal, because it unlocks something bigger.

Making alpha portable

Readers of this publication may recall a recent piece on portable alpha, the idea that you can separate where your capital sits from where your return comes from, effectively getting two exposures out of one pool of money.

That concept works best when the alpha you're porting is well-understood and consistent. A systematic equity process fits that description well. Because the alpha comes from a repeatable framework rather than a concentrated set of subjective bets. Think of it as an engine that can be installed in different vehicles. The alpha source stays the same; the application is flexible.

This is where things get interesting for trustees, because portable alpha doesn't just offer the prospect of higher returns. It changes the risk profile of the portfolio in some meaningful ways.

Diversification and downside protection

The structure of a portable alpha equity fund means you're getting two things at once: broad equity market exposure, plus an independent alpha source on top. Because that alpha is generated separately from the market return, it gives the portfolio a return stream that doesn't just move with the index. In a market like South Africa's, where a handful of large counters can dominate performance, that independence is genuinely useful.

There's a natural cushion built in too. The alpha-generating part of the portfolio tends to sit in lower-risk instruments, which means the overall fund behaves differently during selloffs compared to a conventional equity portfolio. For members approaching retirement, where the order in which returns arrive matters as much as the returns themselves, that's a meaningful benefit.

Keeping costs honest

There's a practical benefit worth mentioning too. Systematic strategies scale efficiently. The intellectual capital lives in the process itself, not in a large team of analysts covering individual stocks. That means a disciplined, alpha-generating approach can be delivered at a fee level that makes sense over long time horizons. Even small differences in fees compound significantly over a 30 or 40-year savings journey.

Why this should be on the trustee agenda

Every rand in a retirement portfolio started as someone's salary, hours worked, sacrifices made, trust placed in the system. The responsibility of making that capital work efficiently is not a small one.

A systematic approach offers transparency: trustees can see exactly what the process does and why. It offers consistency: no style drift, no key-man risk, no changes of direction mid-cycle. And when that process is designed to produce portable alpha, it means every rand can contribute to more than one source of return and more than one layer of protection.

The tools available today allow us to build equity portfolios where the alpha is repeatable, portable, and working across the fund, not just within one allocation. For trustees looking to get the most out of every contribution their members make, that feels like a conversation worth having.

Disclaimer:

Prescient Investment Management (Pty) Ltd is an authorised Financial Services Provider (FSP 612). The information contained herein is provided for general information and marketing purposes only and does not constitute financial, investment, legal, tax or other advice. This document has not been prepared in accordance with the legal requirements applicable to the rendering of advice and does not take into account any investor’s objectives, financial situation or needs. Any investment is subject to risk, including the risk of capital loss. Past performance is not a reliable indicator of future results. Forecasts, forward-looking statements and any targets are not guarantees and are provided for illustrative purposes only. While care has been taken to ensure the information is accurate, Prescient Investment Management (Pty) Ltd makes no representation or warranty as to the accuracy, completeness or correctness of the information and accepts no liability for any loss, damage, cost or expense (whether direct, indirect, special or consequential) arising from the use of, or reliance on, this information. Opinions and views expressed are those of the author as at the date of publication and may change without notice. This document is not an offer to issue or sell or a solicitation of any offer to subscribe for or purchase any investments. For more information visit www.prescient.co.za