The Aeon Balanced Prescient Fund was up by 30 bps on a net return basis for the third quarter of 2019 and is up by 534 bps over a three-year period.

The strongest sector for the quarter ended September was Consumer Goods led by British American Tobacco, AB Inbev and Pioneer Foods as markets benefited from a more positive global macro environment, a Fed rate cut and prospects of better US-China trade relations. Banks was the weakest sector for the quarter, led by Standard Bank, First Rand and ABSA after rating agencies Moody’s and Fitch reported a dim credit view on Eskom and South African sovereign debt and outlook. The quarter ended September was negative overall for equity markets due to global tension enhanced by a multitude of domestic events.

Globally, a low interest rate environment and accommodative central bank poli-cies have continued to structurally drive markets. The uncertainty and volatility caused by geopolitical instability has continued to impede market returns. US-China trade concerns remain firmly in investor minds amid a slowing Chinese economy and increases in trade tariffs by both countries. Talks between the US, China, EU and others are ongoing, however, sentiment was somewhat hindered by the ongoing protests in Hong Kong and the drone attacks on a Saudi oil pro-duction facility. Investors remain quite agnostic as a complete deal is unlikely to be reached soon. On a more positive note, the Fed announced a second 25bps cut for 2019 and the ECB did not disappoint investors either with their expected stimulus measures, decreasing rates to -0.5% and resuming QE at a monthly pace of €20bn. Importantly, the Fed did highlight that further rate cuts would be un-likely given the strength of the US labour market. A dovish stance from the Fed has generally been supportive of markets, however, comments from Jerome Powell regarding the Fed not continuing to act as an appropriate support to sus-tain economic expansions have raised doubt in some investor’s minds. In the UK, Investors are keeping an eye on Boris Johnson’s 31 October Brexit deadline, which took a slight knock as the UK supreme court ruled against Johnson’s sus-pension of parliament. Emerging market economies have been shaped by these global events.

Locally, the domestic environment was unfavourable due to the state of the lo-cal economy. Sentiment has turned more negative as continuous political in-fighting, severe economic growth obstacles, highly indebted parastatals and a potential downgrade remain apparent. Looming government regulation such as the land expropriation bill, debt relief bill and NHI bill heightened investor con-cerns. This led to an exodus of foreign capital, which is of concern. South Afri-ca’s lack of fiscal options may weigh on investment in the short term with little room by the government to manoeuvre. One positive has been Finance minister Tito Mboweni’s economic plan which was well received by business.

In company news, all eyes were firmly on the corporate action which saw Naspers separately list its international assets (including Tencent, Delivery Hero, OLX and Mail.ru) on Wednesday 11 September into a new company, Prosus. This is one of the largest corporate actions of its kind in the world, with far-reaching effects for both local and global investors. Prosus is Europe’s largest internet consumer company and the addition to Amsterdam’s Euronext makes it the third largest company on the exchange. The significance of this is that many passive investors and index trackers may be forced to purchase Prosus or increase their allocation to the company which could result in a narrowing of the discount to the underlying investee companies.

Looking forward, growth expectations set for the local economy seem to reside on global growth and renewed efforts by the newly elected officials. Globally, inflation and GDP growth will be key to try gauge the timing and level of mone-tary policies. Potential capital controls imposed by the US on Chinese companies could dampen global sentiment, however, we have seen opportunities surface, albeit with good reasons and will monitor each individual investment case on independent merit. Astute stock picking with our Growth at Reasonable Price (GARP) philosophy that delivers superior value through the cycle and a focus on companies whose cash flows support earnings should stand us in good stead mov-ing forward.

The Aeon Balanced Prescient Fund was up by 509 bps on a net return basis for the first quarter of 2019.

The strongest sector for the quarter ended March was Resources as markets rallied from US-China trade talks, and positive global trade data which bene-fited resource stocks led by BHP, Anglo American and Sasol. General Retail-ers was the weakest sector for the quarter, led by MRP, Woolworths, and Truworths due to weak trading over the festive period, and a tough South African consumer environment.

Globally, a low interest rate environment has continued to drive markets. Geopolitical and systematic risk has weighed on investor sentiment; howev-er, some certainty and stability has begun to take shape. Three major eco-nomic issues being the US-China trade war, Brexit, and the Fed policy domi-nated the headlines. Global equities rallied as prospects of an amicable res-olution of the US-China trade conflict remain high. Chinese PMI data was above consensus estimates, and the US showed strong job growth numbers. Aided by positive economic data, Fed chair Jerome Powell announced that the Fed would keep rates fixed at the 2.25%-2.50% range for now, inflation was near the 2% target, and he generally delivered an ‘upbeat’ statement. Expectations of a Fed increase for the year are now practically zero, quite different from their previous position. Importantly, a dovish stance from the Fed has been supportive for markets in the short term as this has led to fur-ther "Risk on" trading in emerging markets. In the UK, Parliament gained control of the Brexit process, however MP’s are still struggling to reach con-sensus on a way forward with the hard Brexit day looming. Emerging market economies have been shaped by these global events and thus have benefited as a result.

Locally, political and corporate uncertainty were the two keywords on most investors’ minds. Politicking is in full force with several politicians facing damming allegations. Many South African corporates have also come under severe pressure following various disappointing stock-specific announce-ments. At the same time, Eskom continues to hurt the SA economy, with severe load shedding once again dampening market and consumer senti-ment. Rating agency Moody’s kept South Africa at investment grade with a stable outlook which was widely welcomed. The run up to the national elec-tions in May remains a key concern for rating agencies as well as investment sentiment. This coupled with South Africa’s lack of fiscal options may weigh on investment in the short term.

Naspers announced its intention to float a new company housing Naspers international asset on the Euronext in the Netherlands. This is widely posi-tive and will positively bring some progress in reducing the discount to un-derlying investments and seek to reduce concentration risk on underlying indexes. At Aeon Investment Management, we believe the underlying con-centration risk is essentially the same as both companies would essentially house the same assets (except for Media 24 and Takealot which will be held in the local counter only). However, given that many funds are limited to holding a maximum percentage holding in a single stock, as well as arbitrage opportunities for international investors, we view the proactive action by Naspers as positive as the potential for increased pool of buyers is now a real possibility.

Looking forward, the optimistic growth expectations set for the local econo-my seem to be disappointing with hope residing more on global growth. However, green shoots of opportunity are starting to appear being higher commodity prices which bode well for the local economy. Globally, inflation and GDP numbers will be key to try gauge the timing and level of tighter monetary policies. We have seen pockets of opportunity begin to surface and will monitor these closely. Astute stock picking that delivers superior value through the cycle and companies whose cash flows support earnings tend to outperform the market.