Contents Newsflash Market Comment Other Commentators Economic Update Weekly Market Analysis... 8

Transcription

1 04 May 2015

2 Contents Contents... 2 Newsflash... 3 Market Comment... 3 Other Commentators... 6 Economic Update... 7 Weekly Market Analysis... 8 STANLIB Money Market Fund... 9 STANLIB Enhanced Yield Fund... 9 STANLIB Income Fund... 9 STANLIB Flexible Income Fund STANLIB Multi-Manager Absolute Income Fund... 10

3 Newsflash Sell in May, go away, come back on St Leger Day (9 th September 2015) Market Comment We discuss April s excellent returns below, but we need to point out as we always do in May the saying sell in May, go away, come back on St Leger Day. Quite often, not always, markets do take a breather and/or suffer a correction during the May to September/October period, coinciding as it does with the northern hemisphere summer holiday months. The returns between May and October are historically worse than from November to April for global and local equity markets. April was a very good month for stock markets, especially a number of emerging markets and ours. The MSCI Emerging Markets Index literally jumped +7.7% in dollars in April, well ahead of the +2.4% gain of the mainly developed market MSCI World Free Index. Emerging markets are now +10.2% so far in 2015, with the global index +4.9% (both total returns, i.e. including dividends). The MSCI China Index, the biggest by far at 25% of the MSCI Emerging Markets Index, contributed the most. It soared by an extraordinary +16.7%, in USD too, in April after going nowhere for the last four to five years (of the global equity bull market). This in turn helped the Hang Seng Index in Hong Kong jump +13% in April. Brazil s Bovespa Index also soared (in dollars too) in April, +17.2%, as did Russia s Index (+17.3%), both coming off extremely depressed situations (currencies and shares). Otherwise, the big markets were relatively quiet in April, although the FTSE 100 Index did gain +6.8% in dollar terms, helped by the +4.1% gain in the pound versus the dollar. The S&P 500 Index gained +1% in April, the Nasdaq +2.1%, the Nikkei +1.9% (in dollars) and the Dow Jones Euro Stoxx 50 Index +2.4% (in dollars), with currency gains the biggest factor, with the euro gaining 3.1% versus the dollar. Our local JSE did very well, thank you very much, considering that most locals assessed it as very expensive some months ago. The ALSI 40 Index produced a total return of +5.2% in April (+13.3% over the past 12 months), beating the All Share Index s +4.7% (+14.8% over the past 12 months) thanks to the +8% return of the JSE Mining/Resource Index plus the +16.6% return of Sasol (now included in the Industrial Index). However, even the stretched Financial & Industrial Index returned +4.1% in April.

4 Source: I-Net Bridge Above we show the SA asset class total returns (including dividends) to end April in 2015: SA Listed Property still leads with % total return, followed by the JSE All Share Index s +10.8%, then the All Bond Index s +2.5% and finally cash s +2.05%. Within the All Share Index return, Financials have returned +16%, Industrials +9.9% (the two combined +11.5%) and Resources +7.8%, all fairly handsome returns for the first four months of 2015 and mostly better than most forecasts for the whole of In dollar terms the JSE All Share Index returned +7.7% in April (+7.6% so far in 2015), as the rand gained +2.9% versus the dollar in April (-2.9% so far in 2015). Amazingly, in euros the ALSI has returned +18.3% so far in 2015, in pounds +9.3%. The dollar s decline of 4.6% in April has not yet helped the prices of gold and platinum, but it has boosted the copper price, known as a leading indicator in global economies. The copper price jumped 6% in dollars last week, its biggest weekly advance in over 3 years and amazingly is now flat for 2015, having been -15% at end January. Also the iron ore price is apparently up around 17% from its recent low. Iron ore is not traded on markets, so one cannot check the prices on a graph. Many offshore bond markets lost money in April, led by Europe s -3.9% dollar return as bond yields jumped in Germany and other countries from extremely low levels (causing price declines), -2% in Australia and -1% globally. The SA bond market returned -0.5% in rands in April, as bond yields rose (prices fell) in response to higher inflation expectations later this year and higher bond yields in Europe and lately in the US too. The US 10-year yield rose from 1.94% at end March to the current 2.11%. The German 10-yield more than doubled from 0.18% at end March to 0.37% now, causing a 50% loss of capital, although the return so far in 2015 is positive because the yield at end 2014 was 0.54%!! The yields have probably jumped (from ridiculously low levels) because the European economy is showing signs of improving, inflation is a bit better and the risk of a Greek exit from the Eurozone is now as high as 50%. Also the Eurozone s money supply has accelerated. On the currency front, so far in 2015 Russia s currency actually has the best return versus the US dollar, up +16.3%, followed by Switzerland s +6.1%, Taiwan s +3.2%, Korea s +2.5%, Israel s +0.7% and Japan s +0.2% (China s is flat). The worst is Turkey s -12.6%, then Brazil s -11.4%, Denmark s -7.6%, the euro s - 7.4%, Egypt s -6.3%, Canada s -4.4%, Mexico s -4%, Australia s -3.6% and SA s -3.2%.

5 China s currency, the renmimbi or yuan (both names are used), is the best performing currency over the past year, up +0.9% against the US dollar. By comparison, the euro is -19.2%, the pound is -8.5%, Switzerland -6%, Australia -14.9%, Israel -10.4%, Sweden -22%, Norway -21%, Brazil -25.5%, Mexico %, Russia -30.9%, Turkey -20.8%, India -5% and SA -11.9%. US market letter writer, Steve Sjuggerud, is anticipating that later in 2015, perhaps in October, the IMF may add China to the list of world currency reserves, the first such change in 33 years. Sjuggerud says currently there are 9 global reserve currencies (see pie chart below): Possibly China may be added at 10-15%. Source: Stansberry Research, USA This is Sjuggerud s considered opinion based on information he has gleaned from the IMF and other avenues. It is not a done deal at this stage though. However, if he is right and the IMF does add China in October, then it is quite feasible to imagine many central banks selling dollars to buy the Chinese currency, possibly causing the US currency to lose value. He says during the 1970 s the US dollar lost 30% of its value and inflation was rampant in the US, averaging 7.7% per year. The best performances during the decade came from gold, silver, Japanese shares, diamonds, US farms and US housing (in that order), while US cash, bonds and equities did not perform well, failing to even beat inflation over the decade from 1971 to Other options included depositing money in London or NY or in HK into a yuan/renmimbi account, where in any case the Chinese interest rate is superior to almost all other developed markets (2.5%). Alternatively, one could buy into the Chinese shares listed in Hong Kong, the so-called Hang Seng China Enterprises Index ( H shares) via an exchange traded fund in the US or Chinese bond or money market funds via ETFs in the US. Sjuggerud does recommend specific US-based ETFs for the above. Sjuggerud is bullish on US residential real estate, more so than equities at this stage.

6 Other Commentators US Market Analyst, Elaine Garzarelli Garza notes that the US Fed indicated in its latest meeting that it continues to look for moderate economic growth in the US, despite a bad first quarter, with a gradual rise in inflation to 2%. Garza expects a September rate hike, although the incoming data is important and could change this. Expansionary monetary policies around the world have been supporting equity markets and deals. Lately Thailand unexpectedly cut rates, Sweden expanded quantitative easing, Russia lowered its key rate more than expected and the ECB and Bank of Japan implemented aggressive quantitative easing. Garza s quants indicator rose to 67.5% last week from 65.5% the previous week. She expects the current bull market to continue and corrections to be limited to 4-7%. Consensus Standard & Poor earnings estimates in the US continue to improve because analysts were initially too negative on their earnings outlook. However, the Employment Cost Index (ECI), which rose by +2.6% y/y recently, indicates that labour costs are rising faster, which will affect company profits. Garza is forecasting US company earnings will rise by +5.3% in 2015, indicating fair value for the S&P 500 Index of 2100, around the current level. Garza is positive on US housing, expecting it to boost the economy over the next few quarters. Home prices rose 5% over the last year. BCA Research BCA says recent data supports their view that the Fed will hike soon, but go slow. They believe that the underlying dollar (bullish) and commodity (bearish) trends are intact, but the countertrend moves have further to run. Also, the tendency of the US economy is towards Goldilocks (just enough growth), rather than Ice (deflation/below trend growth) or fire (inflation scare). Equities continue to grapple with the crosscurrents of high valuations (forward PE of 17) versus there is no appealing alternative. Meanwhile the BCA quantitative asset allocation model reduced its allocation to equities from 90% in April to 86% in May, increasing the bond allocation from 10% to 14%. It reduced its huge allocation to European equities for May from 57% to 47%, while increasing both Canadian and Aussie equities by 2% each, as well as Swedish shares (up from 5% to 7%). US shares were held at 6%, with Japan at 9%. US bonds comprise 8% of the 14% allocated to bonds. On the Chinese economy, BCA notes that the authorities have dramatically stepped up efforts to the support the economy. BCA still recommends an overweight in the Chinese stock market and recommends a tactical move to overweight cyclical shares globally versus defensives. Paul Hansen Director: Retail Investing

7 Economic Update 1. SA continued to see subdued growth in household credit and mortgages. 2. Significant improvement in South Africa s trade balance in March. 3. US GDP growth slowed significantly in Q In March 2015, South Africa s private sector credit grew by a still relatively modest 8.9%y/y, up slightly from growth of 8.7%y/y in February. Recently, most of the growth in private sector credit has been driven by the corporate sector, partly to fund expansion into the rest of Africa as well as a few renewable energy projects. In contrast, total value of outstanding credit in the household sector continued to record fairly subdued growth in March 2015, rising only 3.6%y/y, which is up slightly from 3.3%y/y at the end of February. This marginal pick-up in household sector credit was on the back of somewhat higher growth in household mortgages. 2. There was a significant improvement in South Africa s monthly trade account in March 2015, which recorded a surplus of R0.48bn, compared with a record deficit of R24.22 billion in January and a deficit of R8.73 billion in February. The recent slight recovery in commodity prices coupled with improved mining production most likely contributed to a boost in exports, which increased by 19.3%y/y in the month. In addition, import growth slowed to only 6.5%y/y. The improvement in the trade balance will undoubtedly lessen pressure on the Rand in the short-term, but South Africa s current account deficit remains substantial at around 5% of GDP. 3. US GDP expanded by a very disappointing 0.2%q/q seasonally adjusted in Q This was well below market expectations for growth of 1.0%q/q, indicating that the US economy has lost momentum. Most of the slowdown was due to a fall-off in exports, which declined by 7.2%q/q. In contrast, imports increased by 1.8%q/q. This meant that net exports fell sharply in the quarter, subtracting 1.25 percentage points from the quarterly growth rates. Other areas of weakness in the US economy included fixed investment activity, especially spending on commercial property, motor vehicles sales, and government spending. A multiple of factors appear to be responsible for the decline in growth, including bad weather, disruptions at West Coast ports, the stronger dollar s effect on exports and the impact of cheaper oil. Despite the disappointing GDP data for Q1 2015, it is likely that the US economy will record stronger growth during the remainder of the year given the still robust labour market and an ongoing recovery in the housing market. Please follow our regular economic updates on Kevin Lings, Laura Jones & Kganya Kgare (STANLIB Economics Team)

8 Weekly Market Analysis Currencies/ Indices/ Commodities Friday s Close 01/05/15 Weekly Move (%) YTD (%) Indices *MSCI World US Dollar *MSCI World Rand *MSCI Emerging Market US Dollar *MSCI Emerging Market Rand All Share Index US Dollar All Share Index Rand All Bond Index Listed Property J Currencies US Dollar/Rand Euro/Rand Sterling/Rand Euro/US Dollar Commodities Oil Brent Crude Spot Price ($/bl) Gold Price $/oz Platinum Price S/oz Source: I-Net Bridge * MSCI - Morgan Stanley Capital International

9 Rates These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY. STANLIB Money Market Fund Nominal: Effective: 6.27% per annum 6.45% per annum STANLIB is required to quote an effective rate which is based upon a seven-day rolling average yield for Money Market Portfolios. The above quoted yield is calculated using an annualised seven-day rolling average as at 30 April This seven- day rolling average yield may marginally differ from the actual daily distribution and should not be used for interest calculation purposes. We however, are most happy to supply you with the daily distribution rate on request, one day in arrears. The price of each participatory interest (unit) is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. STANLIB Enhanced Yield Fund Effective Yield: 6.43% STANLIB is required to quote a current yield for Income Portfolios. This is an effective yield. The above quoted yield will vary from day to day and is a current yield as at 30 April The net (after fees) yield on the portfolio will be published daily in the major newspapers together with the all-in NAV price (includes the accrual for dividends and interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying holdings of the portfolio. Monthly distributions will consist of dividends and interest. Interest will also be exempt from tax to the extent that investor s are able to make use of the applicable interest exemption as currently allowed by the Income Tax Act. The portfolio s underlying investments will determine the split between dividends and interest. STANLIB Income Fund Effective Yield: 7.28% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 30 April 2015.

10 STANLIB Extra Income Fund Effective Yield: 6.78% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The above quoted yield will vary from day to day and is a current yield as at 30 April STANLIB Flexible Income Fund Effective Yield: 7.12% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 30 April STANLIB Multi-Manager Absolute Income Fund Effective Yield: 5.15% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 30 April 2015.

11 Glossary of terminology Bonds A bond is an interest-bearing debt instrument, traditionally issued by governments as part of their budget funding sources, and now also issued by local authorities (municipalities), parastatals (Eskom) and companies. Bonds issued by the central government are often called gilts. Bond issuers pay interest (called the coupon ) to the bondholder every 6 months. The price/value of a bond has an inverse relationship to the prevailing interest rate, so if the interest rate goes up, the value goes down, and vice versa. Bonds/gilts generally have a lower risk than shares because the holder of a gilt has the security of knowing that the gilt will be repaid in full by government or semi-government authorities at a specific time in the future. An investment in this type of asset should be viewed with a 3 to 6 year horizon. Cash Collective Investments Compound Interest Dividend Yields Dividends Earnings per share An investment in cash usually refers to a savings or fixed-deposit account with a bank, or to a money market investment. Cash is generally regarded as the safest investment. Whilst it is theoretically possible to make a capital loss investing in cash, it is highly unlikely. An investment in this type of asset should be viewed with a 1 to 3 year horizon. Collective investments are investments in which investors funds are pooled and managed by professional managers. Investing in shares has traditionally yielded unrivalled returns, offering investors the opportunity to build real wealth. Yet, the large amounts of money required to purchase these shares is often out of reach of smaller investors. The pooling of investors funds makes collective investments the ideal option, providing cost effective access to the world s stock markets. This is why investing in collective investments has become so popular the world over and is considered a sound financial move by most investors. Compound interest refers to the interest earned on interest that was earned earlier and credited to the capital amount. For example, if you deposit R1 000 in a bank account at 10% and interest is calculated annually; your balance will be R1 100 at the end of the first year and R1 210 at the end of the second year. That extra R10, which was earned on the interest from the first year, is the result of compound interest ("interest on interest"). Interest can also be compounded on a monthly, quarterly, half-yearly or other basis. The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. The higher the yield, the more money you will get back on your investment. When you buy equities offered by a company, you are effectively buying a portion of the company. Dividends are an investor s share of a company s profits, given to him or her as a part-owner of the company. Earnings per share is a measure of how much money the company has available for distribution to shareholders. A company s earnings per share is a good indication of its profitability and is generally considered to be the most important variable in determining a company s share price.

12 Equity Financial Markets Fixed Interest Funds Gross Domestic Product (GDP) Growth Funds Industrial Funds Investment Portfolio JSE Securities Exchange Price to earnings ratio Property Resources and Basic Industries Funds A share represents an institution/individual s ownership in a listed company and is the vehicle through which they are able to share in the profits made by that company. As the company grows, and the expectation of improved profits increases, the market price of the share will increase and this translates into a capital gain for the shareholder. Similarly, negative sentiment about the company will result in the share price falling. Shares/equities are usually considered to have the potential for the highest return of all the investment classes, but with a higher level of risk i.e. share investments have the most volatile returns over the short term. An investment in this type of asset should be viewed with a 7 to 10 year horizon. Financial markets are the institutional arrangements and conventions that exist for the issue and trading of financial instruments. Fixed interest funds invest in bonds, fixed-interest and money market instruments. Interest income is a feature of these funds and, in general, capital should remain stable. The Gross Domestic Product measures the total volume of goods and services produced in the economy. Therefore, the percentage change in the GDP from year to year reflects the country's annual economic growth rate. Growth funds seek maximum capital appreciation by investing in rapidly growing companies across all sectors of the JSE. Growth companies are those whose profits are in a strong upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage price/earnings ratio. Industrial funds invest in selected industrial companies listed on the JSE, but excluding all companies listed in the resources and financial economic groups. An investment portfolio is a collection of securities owned by an individual or institution (such as a collective investment scheme). A funds portfolio may include a combination of financial instruments such as bonds, equities, money market securities, etc. The theory is that the investments should be spread over a range of options in order to diversify and spread risk. The primary role of the JSE Securities Exchange is to provide a market where securities can be freely traded under regulated procedures. Price to earnings ratio or p: e ratio is calculated by dividing the price per share by the earnings per share. This ratio provides a better indication of the value of a share, than the market price alone. For example, all things being equal, a R10 share with a P/E of 75 is much more expensive than a R100 share with a P/E of 20. Property has some attributes of shares and some attributes of bonds. Property yields are normally stable and predictable because they comprise many contractual leases. These leases generate rental income that is passed through to investors. Property share prices however fluctuate with supply and demand and are counter cyclical to the interest rate cycle. Property is an excellent inflation hedge as rentals escalate with inflation, ensuring distribution growth, and property values escalate with inflation ensuring net asset value growth. This ensures real returns over the long term. These funds seek capital appreciation by investing in the shares of companies whose main business operations involve the exploration, mining, distribution and processing of metals, minerals, energy, chemicals, forestry and other natural resources, or where at least 50 percent of their earnings are derived from such business activities, and excludes service providers to these companies.

13 Smaller Companies Funds Value Funds Growth Funds Smaller Companies Funds seek maximum capital appreciation by investing in both established smaller companies and emerging companies. At least 75 percent of the fund must be invested in small- to mid-cap shares which fall outside of the top 40 JSE-listed companies by market capitalisation. These funds aim to deliver medium- to long-term capital appreciation by investing in value shares with low price/earnings ratios and shares which trade at a discount to their net asset value. Growth funds seek maximum capital appreciation by investing in rapidly growing companies across all sectors of the JSE. Growth companies are those whose profits are in a strong upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage price/earnings ratio. Sources: Unit Trust and Collective Investments (September 2007), The Financial Sector Charter Council, Personal Finance (30 November 2002), Introduction to Financial Markets, Personal Finance, Quarter , Investopedia ( and The South African Financial Planning Handbook 2004.

14 Disclaimer The price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS in securities is not the same as a deposit with a banking institution. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from STANLIB Collective Investments Ltd (the Manager). Commission and incentives may be paid and if so, would be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. TER is the annualised percent of the average Net Asset Value of the portfolio incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued on a daily basis at 15h30. Investments and repurchases will receive the price of the same day if received prior to 15h30. Liberty is a full member of the Association for Savings and Investments of South Africa. The Manager is a member of the Liberty Group of Companies. As neither STANLIB Wealth Management Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/590) Compliance No.: HX Melrose Boulevard, Melrose Arch, 2196 P O Box 202, Melrose Arch, 2076 T (SA Only) T+27(0) E contact@stanlib.com Website STANLIB Wealth Management Limited Reg. No. 1996/005412/06 Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/590) STANLIB Collective Investments Limited Reg. No. 1969/003468/06