Investment reports

Market Commentary

The year started off in the same vein as 2019 with a rally in global stock markets on the back of strong earnings from technology companies. The rally was scuppered later in the month by the emergence of the deadly Coronavirus that spread from Wuhan in China and resulted in a shutdown of the city and a steep drop in production in that nation. The MSCI AC World Index ended the month down 1.1% as losses of close to 5% in emerging markets weighed heavily on the index. The US’ S&P 500 ended the month flat as sharp gains in technology shares offset large losses in energy and resources stocks. Emerging markets underperformed developed markets as investors expected the spread of the virus to impact emerging economies more than developed markets due to their heavier reliance on China. US bond yields fell and gold gained as investors sought safe haven assets. The US 10-year bond traded at 1.51% at month end contributing to gains of 1.28% for the Barclays Global Aggregate Bond Index.

Local equity markets followed emerging markets lower with the All Share Index falling 1.7% as poor performance from domestic financials (-5.9%) and Resources (-3.5%) weighed in the bourse. Rand-hedge industrials gained 1.6% as the rand weakened sharply on emerging market growth fears. Listed property stocks lost 3% for the month as domestic fundamentals remained poor. The All Bond Index meanwhile gained 1.2% despite the weaker rand that fell sharply in January along with other emerging market currencies. The currency breached the R15 to the dollar level at month end for a loss of 7.2% for the month.

Fund/Manager Commentary

The Fund’s domestic equity managers performed reasonably well as a group with the aggregate outperforming the Capped SWIX index thanks largely to outperformance from Coronation (-0.6%) and the two SWIX-based ETF’s. Allan Gray Equity (-2.3%) and Abax Equity (-2.9%) gave back some gains while the Momentum ETF (-0.5%) and Low Volatility ETF (-0.7%) proved somewhat defensive. The Value ETF portfolio (-1.6%) again performed poorly (but outperformed the Capped SWIX benchmark) as financials and real estate underperformed. The equity exposure through the multi-asset portfolios was particularly beneficial thanks to the large exposure to rand-hedge industrials.

The active bond manager, Futuregrowth, performed well with gains of 1.24%. It is too soon to track the performance of Stanlib’s Bond portfolio as they only transitioned the portfolio into nominal bonds in early January. The Fund’s property manager, Sesfikile, performed relatively well compared to the peer group as they lost 2.6% vs. the peer group average of 3%. The Fund’s cash managers again met expectations with returns marginally ahead of the benchmark. The Fund’s global equity managers performed well in December (on aggregate) with Baillie Gifford gaining 8.6% in ZAR and SEI gaining 4.5%.

The Fund’s Shariah manager, Oasis, performed well recording gains of 1.8% for the month thanks to their high exposure to global assets.

February so far

February has been a strong month to date with global equity markets up 4% and local markets following suit as the risk on trade gathers momentum. The ZAR is hovering around R15 to the dollar which bodes well for overall portfolio returns as the strong returns from global funds will not be deflated by a stronger currency.