Financial Maturity THE WARWICK HOUSE VIEW. April 2018 IN THIS ISSUE

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1 Financial Maturity THE WARWICK HOUSE VIEW April 2018 IN THIS ISSUE 1. This Month s Focus 2. International Market Overview United States of America Europe Asia 3. Local Market Overview Local Equities Local Currency Local Fixed Income

2 THIS MONTH S FOCUS ACQUISITION OF CADIZ BY WARWICK Warwick is delighted to announce the purchase of the asset management business of Cadiz from JSE-listed Stellar Capital Partners. Cadiz enjoys a 20-year track record of successful asset management with a suite of funds, including South Africa s top-performing money market fund over the past 10 years. The purchase of the Cadiz business lifts Warwick s assets under management and administration to over R30 billion. Cadiz is a company that I and indeed the broader financial services industry have respected for many years. The deal will add value to Warwick in three respects. Firstly, it will add further quality asset management professionals with a successful and proven track-record to our team. Secondly, the Cadiz suite of funds will add to our existing client fund and portfolio offering. Thirdly, the acquisition will take Warwick into the retail and institutional asset management space, which forms part of our three-year strategic plan. Warwick now has an enhanced fund suite with top quartile funds all of which will be incorporated into our wrap funds and other investment products. The Cadiz acquisition now means that the Warwick asset management team has been further strengthened to some 20 experienced professionals with a collective experience of some 300 years in the investment industry. We will continue to look for further opportunities that allow us to improve our entire offering to all of our valued clients and partners over the next 36 months. The sale and purchase will be subject to securing all necessary regulatory approvals. As a valued client, you have my personal assurance of our commitment to achieve and deliver to you even higher levels of client care and asset management excellence. Ian Kilbride Chairman and Chief Executive Officer 1

3 INTERNATIONAL MARKET OVERVIEW International markets had their first positive monthly close since January as US corporate earnings and merger and acquisition activity boosted sentiment. This was given a further fillip by the conclusion of a successful summit between the leaders of North and South Korea easing geopolitical tension, although tempered by continuing concerns regarding US protectionism. UNITED STATES OF AMERICA American markets managed to end the month of April on a firmer note, with the S&P 500 marginally higher by 0.27%, the Dow Jones by 0.25%, and the Nasdaq squeezing out a gain of 0.04%, as healthy corporate earnings boosted the market into mid-april. Economic data released for the US in April showed that the personal consumption expenditure (PCE) index, rose to 2% year-on-year for March, vs. February s 1.7%. This reached the Federal Reserve target as inflation fears were checked. There was also a significant decline in the first quarter GDP reading for 2018, coming in lower at an annualised 2.3%. This compared to the 2017 fourth quarter reading of 2.9%, which was largely attributed to the slowdown in consumer spending, which had increased 1.1% for the first quarter in 2018 and in contrast to the 4% uptick in the fourth quarter of Although reflecting a month-on-month decline, the GDP reading was a better than the expected 2.0%, boosted the April equity recovery. UNITED STATES OF AMERICA INDICES 5 Year normalised Chart of US markets (S&P, Dow and NASDAQ) 2

4 EUROPE European markets also ended April on a firmer footing, as corporate activity, as well as the easing of geopolitical tensions buoyed investor sentiment, with the indices shrugging of the losses and volatility of the previous months. The European Central Bank (ECB) also decided to keep its policy unchanged while downplaying concerns regarding the perceived recent softness in the Eurozone economy. The ECB has indicated that it would continue its bond-buying programme until at least September, with the expectation that it would be wound down by the end of the year. On the back of corporate activity (Sainsbury intending to buy the UK arm of US Retailer Walmart), the FTSE 100 ended the month higher by 6.42%. Further data showed that U.K. manufacturing had also slowed more than anticipated in April and that consumers had borrowed at the weakest pace in 5 years in March, pointing to a continuation of the economy s poor first quarter performance. The monthly Purchasing Managers Index (PMI) number came in at 53.9, from a downward revised number 54.9 for March, which represents a 17-month low, and worse than economists expectations, leading to the anticipation that the Bank of England (BoE) will desist from raising rates at their 10th May meeting. In manufacturing, input price inflation eased to a ninemonth low, with growth in new business orders easing to their weakest level in 10 months, most notably in consumer goods. In Germany, the DAX 30 followed suit as it also ended the month higher by 4.26%, even as March retail sales unexpectedly declined by 0.6% month-on-month, dampening enthusiasm around a consumer driven upswing in the European Union s largest economy. Inflation also slowed unexpectedly, validating the ECB s cautious approach in gradually moving toward easing the Euro-area stimulus. Inflation cooled to 1.4%, defying expectations that it would hold firm at 1.5%. German unemployment declined again as companies continued to hire to meet strong demand, with the number of people out of work shrinking by a seasonally-adjusted 7 000, to 2.37 million, with the jobless rate holding at a record low of 5.3%. In France, the CAC 40 also ended the month firmer by 6.84% even as economic data pointed to a sharp slowdown in growth for the first quarter GDP came in at 0.3%, the weakest level in more than a year and less than half the 0.7% recorded in the last quarter of 2017 and marginally lower than the forecast of 0.4%. Manufacturing production also fell 1.1% over three months, the first decline in seven quarters as bad weather and strikes impacted the French economy. EUROPEAN INDICES 5 Year normalised Chart of European markets (CAC 40, DAX 30, FTSE 100) 3

5 ASIA In Asia, markets ended the month generally firmer with the Shanghai Composite Index ending April lower by 2.48%, while the Hang Seng ended firmer by 2.38%. The weakness in February notwithstanding, the solid start to the year for the Chinese economy remains intact. The Chinese economy saw growth, measured by their manufacturing sector purchasing managers index (PMI), slipping to 51.4 in April vs. a March number of This represents 21 straight months of expansion, while non-manufacturing PMI saw a slight improvement from 54.6 to 54.8, again above expectation. THE Nikkei ended the month higher by 4.72%, notwithstanding a mixed bag of economic data. Disappointing retail sales and Tokyo CPI were offset by continued strength in the labour market and better than expected industrial output gains. In addition, the March unemployment rate in Japan remained in line with expectations, coming in at 2.5%, and industrial output growth coming in at 1.2%, compared to the 2% gain in February. The Bank of Japan (BoJ) in its April policy statement left its guidance unchanged and remained committed to ongoing monetary easing. ASIAN INDICES 5 Year normalised Chart of Asian Markets (Hang Seng, Nikkei and Shanghai Composite) 4

6 LOCAL MARKET OVERVIEW LOCAL EQUITIES After experiencing the worst quarter in some eight years, the JSE All Share Index (ALSI) bounced back strongly in April. The ALSI managed to recoup most of the losses recorded in the first quarter, gaining 5.40% for the month. All the major indices finished the month firmly in the green, led by resources and listed property. On the economic front, there are positive signs from a consumer perspective as retail sales released for February comfortably beat expectations, while consumer confidence rose to a record-high of +26 index points. Inflation rose 3.8% for the month of March, the lowest rate since Inflation is expected to tick up from these levels, however, as higher fuel prices and the VAT increase start to filter through over the coming months. JSE INDICES (TOTAL RETURN) RESOURCES Resources enjoyed a stellar run over the month of April, adding 9.37% for the period. This was an excellent showing compared to an already impressive movement of 5.40% on the JSE All Share. Rand weakness was a large driver of returns over the month, with the currency weakening by approximately 5%. This momentum was compounded by commodity prices firming by 2.42% in Dollar terms, as indicated by the Bloomberg Commodity Index. Precious metals did not fare as well, with platinum dipping 2.95% and gold slipping 0.76%. The star performers for the month were diversified miners. BHP Billiton and Anglo American were both firmly in the green, adding 13.06% and 7.21%, respectively. In line with the precious metal prices, gold and platinum miners struggled to impress. Harmony Gold Mining slid 8.28%, Sibanye Gold lost 2.98% and Impala Platinum retreated 5.10%. Anglo American Platinum managed to swim against the current, pushing its share price 3.81% into the green. For the year ending April, the Resource Index has grown by 6.47% compared to the JSE All Share s -0.89%. 5

7 INDUSTRIALS The INDI25 recovered from a dreadful month in March to jump 5.79% in April, as a mix of SA Inc. companies and Rand hedges boosted the index. Solid results from retailers Clicks and Pick n Pay saw their share prices rocket 17.34% and 17.35% higher. A trading statement from Mediclinic informing investors that results for the year are marginally ahead of expectations and that the group is succeeding with the turnaround of the Abu Dhabi business, sent the share price 15.55% higher. Some of the Rand hedges that were boosted by a depreciating Rand include the likes of Richemont (+11.39%), Bidcorp (+11.19%) and Naspers (+5.80%). On the downside, apparel retailers Mr Price, The Foschini Group and Truworths all finished the month in the red, while British American Tobacco (BATS) was under enormous pressure after Philip Morris International s results missed investor expectations. BAT s share price managed to finish the month strongly, however, ending just 1.34% lower. We continue to favour the larger Rand hedge industrial companies that have exposure to faster growing economies and diversified revenue streams, while actively looking for attractively priced SA Inc. opportunities that may benefit from a resurgent South African economy. FINANCIALS Financials lagged the other major indices, but managed to record solid gains, with the FINI15 finishing the month 3.01% higher. Property counters Fortress REIT and NEPI Rockcastle, which form part of the Resilient stable, were the best performers in the index, jumping 46.22% and 19.64% respectively. Old Mutual had a great month, adding 7.35% after the group updated investors regarding their managed separation plans. After raising R5.7 billion towards the end of March to help fund its joint acquisition of Moroccan company SAHAM Finances, the Sanlam share price remained under pressure in April, ending the month 7.14% lower. Investec PLC and Nedbank were the top-performing banking shares for the month, adding 7.81% and 4.18%, respectively. Barclays Africa Group and Standard Bank were the worst performing banks, although both companies paid out dividends during the month. We continue to hold a slightly overweight position in the banking sector and are currently looking at opportunities in the insurance sector. LISTED PROPERTY The local listed property sector staged a recovery during the month of April, delivering positive performance for the period. Counters in the Resilient stable rebounded on the back of news that an independent review commissioned by the company found no evidence of executive misconduct. Performance varied across the rest of the listed property sector, but counters with a European focus such as Hammerson, Capital and Counties and Echo Polska once again produced positive returns. Property fundamentals in general remain subdued. The office and residential sectors continue to struggle, but slight evidence of a potential recovery in domestic growth bodes well for prospects within the retail and commercial sectors. The listed property market was up 7.68% for the month. Further gains are largely dependent on market factors, such as currency volatility, political quandaries and the potential for growth to materialise. Counters with their business focussed offshore are still currently favoured, but local dividend yields remain an attractive driver for investing in locally-focussed companies. We maintain a diversified mix of property counters in our portfolios. The investment strategy remains one that focusses on consensus and index holdings, while ensuring that we invest in shares that fall within defined quality and liquidity parameters. 6

8 LOCAL CURRENCY The Rand struggled to hold onto its newfound strength during April, ending the month at approximately ZAR against the mighty Dollar. General Dollar strength plagued most global currencies, with the Bloomberg Dollar Spot Index rising 1.95%. South African President Cyril Ramaphosa s drive to raise USD 100 billion in investments helped raise investor confidence, but it had a muted effect on Rand stability and the jubilation was short-lived. After the announcement of President Ramaphosa s plan in mid-april, the Rand retreated 4.43%, finishing the month 5.26% weaker against the US Dollar. This movement coincided with the US 10- Year Government Bond Yield heading towards the psychologically important 3.0% level, putting international investors on edge and decreasing the spread between US and South African 10-Year Government Bond Yields. South African Rand suffered a similar fate against other major global currencies. Against the Euro, the Rand ended the month at ZAR per Euro, a depreciation of approximately 3%. Despite continued Brexit uncertainty, the British Pound Sterling appreciated by more than 3% for the period, with the Rand ending at ZAR per Pound. For the year ending April, the Rand is approximately flat against the Dollar. USDZAR 5 YEAR GRAPH LOCAL FIXED INCOME MARKET REVIEW In contrast to their equity counterparts, global bonds weakened, with the US 10-year generic yield rising 21 basis points to 2.95% during the month of April. German and French bond yields were also up between six and seven basis points for the month. The market continues to watch the rising trend in US bond yields as the 10-year Treasuries threaten to break through the 3.00% yield mark. Foreigners switched to being net sellers of our local bonds. The net sales of R0.4bn were small in comparison to the purchases of R13bn made during the previous month. This softer demand saw our local yields rise across the curve by an average of 20 basis points over the period. The All Bond Index was down 0.68% for the month. Demand for inflation-linked bonds dropped, causing real yields to rise. Consequently, inflation-linked bonds were down 2.62% for the month of April. 7

9 MARKET OUTLOOK Our fixed income outlook for the coming month is detailed as follows: Economic growth remains low, but there are signs of business confidence improving. The currency remains susceptible to political risks, but positive sentiment after the change in presidency is helping to contain short-term volatility. Inflation has moderated and is expected to remain within controlled levels in the near-term. The probability of further rate cuts has diminished as the inflation moderation tapers off. Liquidity is strong with institutional cash portfolio holdings at high levels. Short-term technical trends have turned negative, while long term technical trends remain neutral for now. Local sentiment has turned positive, but remains prone to political risks. Positive performance for the local Fixed Income asset class has been maintained in recent years as depicted by the performance graph: JSE ALL BOND INDEX 8

10 Financial Maturity thewarwickgroup.com An Owner of Authorised Financial Services and Credit Providers PLEASE TAKE NOTE This document is for information purposes only and does not constitute or form part of any issue to offer or sell, or any solicitation or any offer to subscribe for or purchase any particular investment. It is recommended that investors obtain professional financial advice from a licensed financial advisor prior to investing. Warwick Wealth, or any of its subsidiary companies directors, employees or officers shall not be responsible and disclaim any liability for any loss, expense and or damages (direct, indirect, consequential and or special) which may be suffered due to or be attributable, directly or indirectly, to the reliance of, or use of any information contained in this document. Collective investment schemes in securities are generally medium- to long-term investments. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. A schedule of fees, charges and maximum commissions is available on request from the manager, or is available on the website at The manager does not provide any guarantees, either with respect to the capital or the return of a portfolio. Foreign securities within portfolios may have additional material risks, depending on the specific risks affecting that country. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Investors are reminded that an investment in a currency other than their own may expose them to a foreign exchange risk. Warwick Portfolios (Pty) Ltd, Warwick Funds (Pty) Ltd, Warwick Wrap Funds (Pty) Ltd, Warwick Specialists (Pty) Ltd, Warwick Consult (Pty) Ltd and Warwick Advisory (Pty) Ltd are Authorised Financial Services Providers.