NEDGROUP INVESTMENTS STABLE FUND. Quarter Three, 2018

Transcription

1 NEDGROUP INVESTMENTS STABLE FUND Quarter Three, 2018 For the period ended 30 September 2018

2 NEDGROUP INVESTMENTS STABLE FUND INVESTMENT OUTLOOK AND FUND CONSTRUCTION SUMMARY WORLD: US-led global expansion undoubtedly in its late stages Global protectionism gathering momentum EU political and Brexit risks resurfacing Global liquidity momentum now in decline US bond yields trajectory unaltered Commodity weakness (ex oil and gold) likely to persist SOUTH AFRICA: Tangible economic reform unlikely before 2019 election outcome Twin-deficit emerging market nations vulnerable to shocks High oil prices and weak rand risks to the SA economy Business investment and consumer spending continue to languish Increased probability of an increase in the repo rate FUND CONSTRUCTION: Prudent construction manages rising SA-specific economic risks Historically-low JSE equity weighting favours global businesses Foreign assets at prudential maximum Avoid retail and commercial SA property counters Shorter-duration R186 government bond preferred to cash Physical gold (ETF) is an attractive, uncorrelated investment Cash allocation higher EFFECTIVE ASSET ALLOCATION (previous) % % JSE equities 12 (12) Foreign assets 31 (32) JSE property 5 (5) Commodities 3 (4) SA bonds 34 (32) Cash 15 (15) 100 Page 2

3 SECTOR CONTRIBUTION TO 30 SEPTEMBER 2018 (Return x weight) JSE equities JSE property Interest bearing* Other assets Foreign assets % % % % % % 1 year months months * Bonds and cash combined SELECTION TO 30 SEPTEMBER 2018 JSE equities JSE property Interest bearing Foreign assets Capi Index Real Estate Index ALBI Index AF Call Dep Index Bench-mark* % % % % % % % % % From inception (01/11/2007) 10 years years years years year months months * 60% Morgan Stanley World Equity Index in rand 40% Salomon Smith Barney World Govt Bond Index in rand TOP CONTRIBUTORS/DETRACTORS FOR Q (note that these are weighted contributions, not relative attributions) Contributors (Q3) Contribution (Gross) % Holding Return (Gross) % Average Weight % Foreign assets 1.31% 4.40% 31.34% R % 1.38% 26.07% Cash 0.25% 1.82% 13.72% SOL - Sasol 0.22% 10.31% 2.14% Detractors (Q3) SBK - Stanbank -0.10% -6.62% 1.53% CCO - Capital & Counties -0.15% -4.45% 3.09% APN - Aspen -0.64% % 2.00% Page 3

4 Some of the performance momentum of the last six months reversed in September as the emerging markets rout took a breather. This is not surprising nor material and does not change our view that the inflection point is well behind us. The rand gained 3.9% against the US dollar with the non-resource rand hedge counters consequently retracing. But the currency depreciated by 10% in August and a lot more since February s peak near R11.50/$. Most of September s gains have already reversed in early October as robust US growth spurred dollar assets. We have high conviction that the portfolio bias to global businesses via direct offshore investment and SA-listed international opportunities is correct. This reflects more the underlying economic fundamentals than speculation on shortterm rand movements. Aspen (-41.9%) reported earnings growth which disappointed the street and the share price was harshly (over)punished. Management could and should have disclosed more during the financial year, but these are things that we are engaging them on as part of our active shareholder responsibilities. The counter has long been core to the and has been a strong contributor to long-term returns. We still believe that Aspen is a good business with attractive earnings growth prospects and it is now on a very attractive valuation. We remain holders of the counter. The Capco investment (-4.5%) declined but the low weighting to the SA Listed Property sector (-4.1%) was beneficial. Core holding in non-resource rand hedge British American Tobacco (-3.1%) detracted from returns for short-term stock specific reasons. The R186 government bonds (+1.4%) contributed positively despite rising yields given the high real yield and relatively short modified duration. Despite weaker relative performance in September, returns this year are good overall and the portfolio is well positioned for the unfolding environment. Page 4

5 PORTFOLIO STRUCTURE FTSE/JSE Capped Mandate Effective exposure Weightings (%) 30/06/ /09/2018 % % % JSE equities: resources JSE equities: financials (ex property) JSE equities: industrials JSE equities* Foreign assets Foord International Foord Global Equity JSE property 5 5 Commodities SA bonds Money market Total fund R m R m *Size distribution of JSE equities % % % Large capitalisation Mid capitalisation Small capitalisation Exposure analysis Domestic Foreign Total % % % Equities Listed property Corporate bonds Government bonds Commodities Money market Page 5

6 Effective exposure 30/06/2018 Effective exposure 30/09/2018 Money market 15% Resources 3% Financials 3% Industrials 6% Industrials 6% Financials 3% Resources 3% Money market 15% SA bonds 32% Foreign assets 32% SA bonds 34% Foreign assets 31% Commodities 4% JSE property 5% Commodities JSE property 3% 5% MARKET BACKGROUND AND OUTLOOK WORLD The global economic expansion continued, driven by robust US economic activity where unemployment has been below 4% for the longest period in 18 years the cycle is now undoubtedly in its late stages World equity markets advanced, led by US bourses but emerging markets were lower after the Trump administration levied more tariffs on Chinese goods and introduced heavy new tariffs on Turkish steel and aluminium, sending the lira into a nosedive Despite later reaching agreement with Mexico and Canada on NAFTA renegotiations, the new era of global protectionism is gathering momentum with particularly negative consequences for emerging markets EU political risk resurfaced as Italy s new populist government threatened to breach EU budget deficit limits and the EU dashed hopes of a Brexit deal dashed by rejecting Theresa May s Chequers proposal with less than six months to go, the prospect of a no-deal Brexit and the uncertainty that comes with it, is increasingly probable The Federal Reserve again raised the federal funds target rate and started the slow process of winding down its balance sheet, with the European Central Bank about to conclude its own stimulus this pending reversal in the decade old global liquidity dynamic is important and likely to have material consequences in global capital markets in the years ahead Developed market bond yields were higher, with the US 10-year yield surpassing 3.0% the tone of the Fed s announcement was noticeably more hawkish The oil price surged on supply concerns given disruptions in Venezuela, the US announcing new sanctions on Iran and Russia and OPEC s refusal to ramp up production rising energy prices compound the liquidity reversal in global markets leaving energy importing deficit economies particularly vulnerable to economic shock Commodity prices were broadly lower on US dollar strength and the negative trade outlook resulting from increased protectionism commodity weakness should persist, but the gold price is approaching the marginal cost of production, underpinning its traditional role as a hedge against inflation and US dollar risks Page 6

7 SOUTH AFRICA Data confirmed a technical recession with Q2 GDP contracting 0.7% (q-on-q) after Q1 s -2.6%, mostly due to very weak consumption, steep agriculture declines and a dearth of fixed investment despite a decade of economic mismanagement, imminent national elections imply meaningful reforms will not be implemented soon The rand weakened sharply against the US dollar on emerging market contagion risk emanating from Turkish and Argentinian disruption, compounded by trade war escalation small, open, twin-deficit economies are vulnerable to shocks as the decades-old global liquidity dynamic starts to reverse The FTSE/JSE Capped All Share index declined with mixed performance from the rand hedge counters as stock specific factors offset the weaker rand but SA Inc. counters were mostly sharply lower The rising dollar oil price and weaker rand pose significant risks to the South African economy with the economy already in recession, the SA petrol price has reached an all-time high, indirectly taxing economic activity and reducing consumption and investment Business confidence and consumer spending languished amid political uncertainty and disposable income growth constrained by rising taxes, fuel prices and administered costs severely stretched public finances mean government cannot meaningfully stimulate growth, making private sector fixed investment (foreign in particular) crucial for growth SARB kept interest rates unchanged despite the sharply higher fuel price and interest rate increases in peer economies Turkey and Russia although the MPC s tone has turned decidedly hawkish, the central bank recognises the limited and temporary fuel price impact on inflation given the extremely weak levels of aggregate demand PROXY VOTING SUMMARY FOR Q Resolution Type Name Total Count For % Against % Abstain % Adopt Financials % 0.00% 0.00% Auditor/Risk/Social/Ethics related % 6.25% 0.00% Buy Back Shares % 0.00% 0.00% Director Remuneration % 0.00% 0.00% Dividend Related % 0.00% 0.00% Issue Shares % % 0.00% Loan / Financial Assistance % 16.67% 0.00% Other % 0.00% 0.00% Re/Elect Director % 0.00% 0.00% Remuneration Policy % 20.00% 0.00% Share Option Scheme % 0.00% 0.00% Shares under Director Control % 50.00% 0.00% Signature of Documents % 0.00% 0.00% Page 7

8 WHO WE ARE Nedgroup Collective Investments (RF) Proprietary Limited, is the company that is authorised in terms of the Collective Investment Schemes Control Act to administer the Nedgroup Investments unit trust funds. It is a member of the Association of Savings & Investment South Africa (ASISA). OUR TRUSTEE The Standard Bank of South Africa Limited is the registered trustee. Contact details: Standard Bank, Po Box 54, Cape Town 8000, Trustee-compliance@standardbank.co.za, Tel PERFORMANCE Unit trusts are generally medium to long-term investments. The value of your investment may go down as well as up. Certain unit trust funds may be subject to currency fluctuations due to its international exposure. Past performance is not necessarily a guide to future performance. Nedgroup Investments does not guarantee the performance of your investment and even if forecasts about the expected future performance are included you will carry the investment and market risk, which includes the possibility of losing capital. PRICING s are valued daily at 15:00. Instructions must reach us before 14:00 (12:00 for Nedgroup Money Market ) to ensure same day value. Prices are published daily on our website and in selected major newspapers. FEES Certain Nedgroup Investments unit trust funds apply a performance fee. For the Nedgroup Investments Flexible Income and Nedgroup Investments Stable, it is calculated daily as a percentage (the sharing rate) of total positive performance, with the high watermark principle applying. For the Nedgroup Investments Bravata World Wide Flexible it is calculated monthly as a percentage (the sharing rate) of outperformance relative to the fund s benchmark, with the high watermark principle applying. All performance fees are capped per fund over a rolling 12-month period. A schedule of fees and charges and maximum commissions is available on request from Nedgroup Investments. DISCLAIMER Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. Nedgroup Investments has the right to close unit trust funds to new investors in order to manage it more efficiently. For further additional information on the fund, including but not limited to, brochures, application forms and the annual report please contact Nedgroup Investments. NEDGROUP INVESTMENTS CONTACT DETAILS Tel: (RSA only) Tel: (Outside RSA) Fax: (RSA only) info@nedgroupinvestments.co.za For further information on the fund please visit: OUR OFFICES ARE LOCATED AT Nedbank Clocktower, Clocktower Precinct, V&A Waterfront, Cape Town, 8001 WRITE TO US PO Box 1510, Cape Town, 8000 Page 8