World equity markets finished 2024 close to all-time highs. The MSCI World Index finished up 19%, driven by a strong US equity market that saw the S&P 500 and the Nasdaq up 25% and 26%, respectively. Locally, the FTSE/JSE All Share Index finished the year up 13% in rands and 10% in US dollars.

The Fund returned 11.5% for the 2024 calendar year, lagging the benchmark by 5.1%. This is mainly attributable to some of our large local shares, such as AB InBev, underperforming the SA Inc shares which rallied strongly post the national elections and the formation of the government of national unity (GNU). This is particularly true for economically sensitive shares such as clothing retailers, which performed exceptionally. Similarly, financial shares benefited from failing yields on South African government bonds and returned more than 20%1 for the year.

The SA Inc share prices are discounting a better future, but the recent earnings results were generally still reflective of the poor economy, structural problems and a tough trading environment. It is also probably fair to say that the GNU’s 'unity' has yet to be truly tested. It has been a great period for holders of these domestic assets, and the rand marginally weakened against a strong dollar as well, but the fundamentals will still have to start coming through to justify some of the price moves.

From what we can gather, it is interesting that much of the buying was by local fund managers rotating out of dual-listed multinationals into SA Inc shares. This means there could still be a further leg-up in the rally if foreign investors return to buy SA equities in size. Given the large price moves, we have been trimming some positions into price strength, where appropriate.

It was, however, somewhat pleasing to see the market recognise the value of some of the assets in two of our smaller holdings with the successful listing of Pick n Pay’s subsidiary Boxer Retail and a bid by a private equity firm for Super Group’s listed Australia fleet management business, SG Fleet. If successful, it will allow Super Group to pay out a significant portion of its market cap back to shareholders.

One of the trends we are monitoring closely for potential opportunities for both the local and offshore portions of the Fund is the continued disappointing economic data emanating out of China. Many Chinese-related shares have been relatively weak despite several announcements made by the Chinese government to boost confidence and the economy. Transitioning from investment-led growth to growth led by consumption is proving to be difficult.

The Fund has 43% invested directly offshore in a mix of Orbis funds and positions managed directly by the South African investment team. The offshore portion of the Fund looks very different from the world index and many of our competitors. We remain underweight the US market and mega-cap tech with our only current exposure being Alphabet.

While much of the rally has been driven by excitement over the amazing progress in artificial intelligence (AI), we believe you can get exposure to businesses that can benefit from AI, such as Booking Holdings and Interactive Brokers, whose business models are very much tech based.

We would not be surprised to see some kind of consolidation in markets after the large price moves in the indices, but there are many shares that have not participated in the up move, which we can hopefully take advantage of in the Fund. During the quarter, the Fund purchased AB InBev and Aspen and sold British American Tobacco and OUTsurance.