The best investors don’t just pick stocks, they build systems. In a world currently rattled by politics, pandemics, tariffs and currency shocks, intuition and discounted cashflow models alone are no longer enough. Resilient portfolios require structure, and investing today is as much about engineering discipline as it is about financial insight.
South African fund management has long been dominated by accountants and their preferred tool, the discounted cash flow model. This method values a stock in isolation against its future cash flows. Useful, but not sufficient. STANLIB’s Systematic Solutions team takes a different lens: the engineering mindset. By applying data science, building repeatable processes, and designing systems that can withstand both the known risks and the unknown shocks of modern markets, we’re shaping a more resilient approach.
The point can be illustrated with a vivid contrast. Traditional fund managers often oversee a portfolio like a ball of clay, moulded according to instinct, emotion and talent. By contrast, we approach it like a Rubik’s cube. Every decision runs on rails that are designed, calibrated and stress tested. No matter the storm, we know how the portfolio should look because the rails hold steady. We use the same raw ingredients, balance sheets, income statements and cash flow data, but remove the unpredictability of human emotion from the decision-making.
This systematic discipline is not as new as some think. Economist Benjamin Graham, the father of value investing, was in many ways a quant before the term existed. His book, The Intelligent Investor, codified the drivers of stock returns. What has changed, is the toolkit. The industry has moved from pen-and-paper calculations to spreadsheets, and now to advanced data science. The next frontier is machine learning applied to vast datasets, tools that can unlock new signals and identify threads of alpha hidden in the noise.
The human factor
Noise is what defines modern markets. This noise could be presented as a bowl of spaghetti, where everything from Trump tariffs and natural disasters to local earnings reports tug prices in every direction. The challenge is to detangle that chaos and find the golden threads of quality, value and growth that consistently drive returns.
But systematic investing is not a black box. Humans remain central to the process. Highly intelligent and trained humans design the system, verify the data, run controls and oversee implementation. The real black box is the human mind, with its biases and unpredictability. A disciplined system, in contrast, is transparent.
That does not mean there is no room for judgment. Some funds the STANLIB Systematic Solutions team manages allow for fundamental oversight, where managers can intervene to manage short-term risks. The future of investing, however, lies in this blend of human insight and systematic discipline. To illustrate, consider grandmaster Garry Kasparov’s invention of freestyle chess after his famous defeat by IBM’s Deep Blue. In freestyle tournaments, humans could use computers, and the winners were not the strongest humans or smartest machines, but average players paired with average programs working together. This is what modern active investing should look like: humans empowered by data-driven systems.
Day to day, the process is about shadowing the market’s mindset. It’s like a beauty contest: to predict the winner, it is less useful to choose whom you personally find attractive, and more useful to anticipate what the judges will choose. In markets, the judges are other participants. By studying what they are likely to buy and distilling this into measurable signals, systematic investors can position themselves for long-term outperformance.
Risk management is central. “You can’t manage what you can’t measure,” the saying goes, and too many managers rely on rules of thumb. Our team measures risks stock by stock, sector by sector, and correlation by correlation, enforcing diversification by design. Diversification is the only free lunch in investing, and it cannot be left to chance. We even manage macro risks, such as the market’s sensitivity to the gold price or the rand-dollar exchange rate, neutralising them deliberately in portfolios.
Top performance
The results speak for themselves. Since inception in 2016, the STANLIB Enhanced Multi-Style Equity Fund has delivered top-quartile performance over every major horizon, two, three, five, seven and nine years, while charging bottom-quartile fees. That is best-in-class returns at best-in-class value. The fund has also achieved a 100% hit rate of outperformance over every rolling three-year period since launch. And because its alpha is uncorrelated with peers, investors who combine it with competitors’ funds may even secure that elusive free lunch.
For investors seeking to think more systematically about their own portfolios, a simple starting point is to gather data. If price-earnings ratios matter, collect historical p:e, assess them against past returns and learn how the signal performs through cycles. Build rails, strip away emotion, and never stop innovating. And resist the temptation to focus only on what changes.
Why? As the legendary investor Warren Buffett reminded a colleague during the depths of the 2008 monetary crisis, the best-selling chocolate bar in 1978 was a Snickers, and 30 years later, in the middle of the crisis, it was still a Snickers. The lesson: focus less on what shifts, more on what endures.
That, is the heart of systematic investing: science, structure and strategy designed not just to survive storms but to thrive through them. Emotion alone will not get you there. Systems will.
Rademeyer Vermaak ishead of Systematic Solutions at STANLIB Asset Management.
About STANLIB Asset Management
STANLIB Asset Management is one of South Africa’s leading investment managers, with more than R550bn in assets under management as of December 2024. As the institutional asset manager within the Standard Bank Group’s Investment & Asset Management business unit, STANLIB is focused on delivering consistent investment returns. To fulfil this fiduciary duty, it leverages progressive investment strategies and best-in-class, transparent partnerships, including its collaboration with J.P. Morgan Asset Management. This partnership provides clients with more access to global insights and forward-looking strategies.
STANLIB offers a core range of unit trust funds and manages a diverse array of bespoke institutional portfolios across various disciplines and asset classes, including fixed income, multi-asset, listed property, equity, and alternatives. Visit STANLIB.com.
Disclaimer
STANLIB is an authorised financial services provider (FSP) under the FAIS Act (Licence No. 719) and a registered Manager in terms of CISCA. Additional information about the Fund is provided in the Minimum Disclosure Document available at www.stanlib.com.
Top image: Mindandi on Freepik.com.
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