MARKET & FUND COMMENTARY

Transcription

1 MARKET & FUND COMMENTARY Global economics and geopolitical tension dominated in October. Policy and growth divergence amongst developed markets widened during the month, with the USA on the way to policy normalisation while many other central banks continue to ease. The Bank of Japan surprised by upping the ante on quantitative easing, while the European Central Bank disappointed in this regard. With low growth and low inflation a concern in Europe and Japan, the race to further currency depreciation has been pursued with vigour. In the aftermath of a roller-coaster month domestically, JSE All Share Index rose1%, with small caps (3.7%) outperforming large caps (0.7%). Resources (RESI20) fell 9.8%, industrials (INDI25) were 4% higher and financials (FINI15) rewarded investors with 7%. The Rand staged a rally during October, appreciating 2.3% against the USD and gaining 3.8% against a EUR under pressure from the USD. With lower oil prices globally, continued capital inflows, lower global real rates and moribund economic growth locally, the SARB has been provided some relief on the interest rate front. Table 1: Total return of selected SA indices & currency crosses to 31 October 2014 Quarter 1 Year 3 Years 5 Years 10 Years SA Equity Top Small Caps Resources Industrial Financial SA Property SA Bonds SA Prefs SA Cash US Dollar / Rand Euro / Rand GB Pound / Rand Source: I-Net Bridge & Cordatus Capital The main investment themes internationally likely to impact South African portfolios are declining commodity prices, lower energy costs, weaker economic activity in Europe (and China), tighter US monetary policy and further strength in the USD. Locally, anaemic growth, a large current account deficit, labour union unrest and a tougher fiscal stance out of National Treasury are being watched with interest for implications. As a result, we anticipate SA interest rates to be increased only marginally before year-end, if at all!

2 Table 2: Returns on Cordatus Funds / Portfolios ending 31 October 2014 Month Quarter 6 Months 1 Year 2 Years (ann) 3 Years (ann) Cordatus SA Equity Portfolio Laws Climate Change Equity Pres Fund Benchmark [1] Cordatus Global Equity Portfolio [GBP] Benchmark [2] GBP Prescient Wealth Balanced FoF A Benchmark [3] Prescient Wealth Income FoF A Benchmark [4] Cordatus Worldwide Flexible Pres FoF A Benchmark [5] Cordatus Worldwide Flexible Pres Fund A Benchmark [5] A current fact sheet for each of the above portfolios is available at Returns for periods longer than 1 Year are annualised. The Equity and Global Equity Portfolios are segregated mandates run according to specific client income, risk and return objectives. Benchmark [1] = 100% All Share Index TR, Benchmark [2] = 100% MSCI World Index TR [GBP], Benchmark [3] = 50% JSE ALSI + 25% ALBI + 15% MSCI + 10% SA Cash TR, Benchmark [4] = 100% SA Cash Index + 2%. Benchmark [5] = CPI + 5% Over the past 12 months returns on the multi-asset range of funds managed by Cordatus Capital have been rewarding for investors. Whether in the low risk PWM Income FoF or the higher risk Cordatus Worldwide Flexible Fund, investors have generated real returns during the period. This is our primary objective within our fund range and continues to be our focus in the year ahead. Graphic: 1 year return of Cordatus Multi-Asset Funds vs. SA asset class returns: Oct Page 2 of 8 Cordatus Capital Monthly Investment View October 2014

3 Table 3: Broad Asset Allocation of Cordatus Portfolios ending 31 October 2014 Manager CORDATUS CORDATUS CORDATUS CORDATUS CORDATUS CORDATUS Portfolio Global Equity SA Equity WW Flex Fund WW Flex FoF PWM Bal FoF PWM Inc FoF Currency GBP ZAR ZAR ZAR ZAR ZAR South Africa Equity Property Bonds Cash Other Offshore Equity Property Bonds Cash Other A BREAK FROM THE NUMBERS FOR A WHILE Source: A DECADE OF BALANCED FUND RETURNS - PWBF The PWM Balanced FoF (PWBF) started life in October The initial structure of the investment portfolio was that of a wrap fund (i.e. a fund-of-funds, without the unit trust regulatory protection). The PWBF is now a regulated Collective Investment Scheme and enjoys the tax protection this structure offers. The PWBF has been managed by the same fund manager (Craig McKay) since inception and while the performance reference benchmark has undergone slight cosmetic changes since inception (as foreign exchange regulations evolved) the primary objective of the PWBF has always been to return in excess of CPI+4% per annum (after all costs) over rolling periods which encompass a full economic / interest rate cycle. The longer term The chart below shows the monthly returns (net of all fees and costs) generated on the PWBF over rolling 10-year periods (shifted by 1-month for each data point). Thus, the starting point of this chart encompasses the data from October 2001 to October The last data point (September 2014) shows that over the preceding 10-year period the PWBF returned an annualised 15.5% per Page 3 of 8 Cordatus Capital Monthly Investment View October 2014

4 annum (the JSE All Share Index returned 18.8% over this period), 9.4% pa above SA CPI and 5.4% pa above SA CPI+4% on an annualised basis. This return would place the PWBF in 7 th position out of the 28 competitors that have a 10 year history in the South Africa Multi-Asset High Equity category in the Morningstar category rankings (i.e. top quartile)! 20.0 Rolling 10-year (annualised) returns, shifted monthly PWBF CPI Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Source: I-Net Bridge & Cordatus Capital The following chart shows the cumulative value of R100 invested at inception. The periods of 2002, 2008 and 2011 (see chart below) are shown as part of the series. 800 Cumulative return, based to 100 at inception, date monthly PWBF CPI START Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Source: I-Net Bridge & Cordatus Capital Page 4 of 8 Cordatus Capital Monthly Investment View October 2014

5 As most investors are aware (primarily those that have been in the market for the last 15 years) the SA equity environment has been a rewarding place to be. What many tend to forget is that it has not been plain-sailing during this period. In fact, at times it felt very uncomfortable, pretty much how many investors are feeling today I would imagine. Wealth accumulation (i.e. generating real returns over time calibrated to your wealth targets) is a process that requires patience, insight, an awareness of risks and regular reviews. The chart below shows that embedded in the 10-year rolling returns shown for the PWBF we have had to weather a number of uncomfortable periods. The 2002/2003 period highlighted below and designated A saw the ALSI fall by 33%. The 2008/2009 period highlighted below and designated B saw the ALSI fall by 42%. The period designated C which lasted for most of 2011 saw the ALSI decline by a modest 9%. JSE All Share Index and SA Prime Interest Rate, monthly The moral of the story being that when seeking excess returns (i.e. a return greater than that available on risk-free assets e.g. cash, government bonds, etc) you have to accept that there will be periods when your resolve will be tested. Are we in such a period currently? It certainly feels like it, doesn t it? NOTE TO SELF:.... Page 5 of 8 Cordatus Capital Monthly Investment View October 2014

6 CHARTS & GRAPHS WE FIND INTERESTING AT THE MOMENT All charts from INet BFA unless indicated otherwise GRAPH 1: USD Should USD strength persist, it does not bode well for the ZAR GRAPH 2: OIL Lower oil prices are good for the SA consumer and ultimately inflation. Page 6 of 8 Cordatus Capital Monthly Investment View October 2014

7 GRAPH 3: INFLATION Inflation pressures are easing thanks to lower oil and food prices GRAPH 4: RENOVATORS While cement and paint prices have moderated, the price of bricks remain stubbornly high! Page 7 of 8 Cordatus Capital Monthly Investment View October 2014

8 Being cognisant of the risk, return and investor profile of individual mandates, we would remind investors who have entrusted Cordatus with their long-term wealth management requirements that performance (see page 1) over the next decade is unlikely to match that of the past 10 years! The price you pay for any asset is important and our portfolios (as shown in Table 3) reflect our view on relative valuations, reversionary trades and the need for some protection. Regards, Craig, Rolfe, Kim and Arthur NOTE TO SELF: Don t forget to follow Cordatus on Don t forget to register for online access to my funds (Cordatus Worldwide Funds & PWM Funds) on the Cordatus website: DISCLAIMER Cordatus Capital (Pty) Ltd is an authorised Financial Services Provider [FSP # 21263]. The content of this presentation and any information provided may be of a general nature and may not be based on any analysis of the investment objectives, financial situation or particular needs of the client (as defined in the Financial Advisory Intermediary Services Act). As a result, there may be limitations as to the appropriateness of any information given. It is therefore recommended that the client first obtain the appropriate legal, tax, investment or other professional advice and formulate an appropriate investment strategy that would suit the risk profile of the client prior to acting upon such information and to consider whether any recommendation is appropriate considering the client s own objectives and particular needs. Any opinions, statements and any information made, whether written, oral or implied are expressed in good faith. The products discussed in this presentation, may or may not, be regulated by the Page 8 of 8 Cordatus Capital Monthly Investment View October 2014