Global:
Global equity markets got off to a decent start in April on the back of receding trade war rhetoric and optimism around the US earnings season and global tech recovery. However, this momentum was short-lived as the political fracas in Italy and Spain, coupled with trade tariffs by the US on its allies sent investors fleeing for safety mid-way through the quarter. Risk-off sentiment kept the dollar bid up against emerging markets, exposing vulnerable emerging economies such as Argentina and Turkey and a glimpse of what the future holds for those countries swimming naked (i.e. limited foreign exchange reserves and sizeable external balances) when the tide eventually goes out (withdrawal of liquidity).

In terms of MSCI indices, developed markets, as measured by the MSCI World Index, returned 1.7%, fared better than their emerging market counterparts, as measured by the MSCI Emerging Market Index, returned -8.0%, which saw major losses in Latin America weighing on the index. In developed markets, the US (+3.4%) took no prisoners with the economy firing on all cylinders. Trade tensions continued to weigh on other foreign equity markets with China (-3.5%), Japan (-2.8%) and Europe (-1.3%) ending in the red. Despite touching the 3.1% mark during the quarter, US 10-year treasury yields ended the quarter lower circa 2.86% in a risk-off environment. A stronger US dollar placed downward pressure on global bonds which saw the Barclays Global Aggregate Bond Index ending the quarter 2.8% weaker. All returns quoted in US dollars.

Commodities:
Metals had a good run for most of the quarter although ending the final month in the red. For the quarter, zinc (-12.8%) posted the largest decline over the period, followed by copper (-1.3%) and silver (-1.0%), while iron ore (-1.7%) also lagged. On the positive side, nickel (+12.0%) spearheaded performance alongside aluminium (+6.4%). Precious metals had another disappointing quarter, with palladium (+0.8%), the only greenshoot, while its cousin platinum fell 8.1% and gold (-5.4%) continued to toil under a stronger dollar government. Oil prices continued to edge higher during the quarter, despite Opec and Russia agreeing to increase production as speculators remained bullish. President Donald Trump and Saudi Arabia's prized clients have also pleaded with the country to pump more oil so as to maintain market balance. Brent Oil Crude finished the quarter up 13.1% and WTI +14.2%. All in US dollar terms.

South Africa:
In South Africa, the previous quarter's optimism over the election of Cyril Ramaphosa appeared to be wearing thin already on the back of a string of disappointing local economic news and a much weaker rand. In South Africa it was a tough quarter for investors, as the rand, bonds and equities all came under selling pressure amid the risk-averse global sentiment, as well as from largely unfavourable domestic data. The land reform debate also added to uncertainty.

Although headline inflation, as measured by CPI, fell to 4.4% y/y from 4.5% in April, better than the 4.6% expected, Q1 GDP growth shocked the market with a sharp contraction of -2.2% (q/q annualised), well below the +1.5% growth expected, with agricultural, mining and manufacturing production all shrinking. A much weaker rand and rising petrol price also raised concerns over higher inflation to come, denting business confidence. Other concerns stemmed from uncertainty over the government's proposals for National Health Insurance (NHI) and a strike at Eskom causing electricity outages. The optimism over Cyril Ramaphosa's election seen earlier in the year appeared to dissipate somewhat in the face of the daunting economic challenges the government faces.

Taking note of the building inflationary pressures, but the headwinds facing the local economy as well, the SA Reserve Bank (SARB) kept interest rates on hold at its May Monetary Policy Committee (MPC) meeting, as expected.

Local equities fared better than their bond counterparts over the quarter. While the MSCI SA was down 11.9% in US dollars, with the rand shedding 13.7% over the quarter, in rand terms the FTSE/JSE All Share Index ended the quarter up 4.5%. Earnings season and the unwind of the 'SA Inc' trade weighed on financials (-6.0%) over the quarter, while stronger commodity prices were a boon for resources (+19.6%) and industrials (+4.0%) also closed the quarter in positive territory. Yield-orientated assets had a disappointing quarter amid global turmoil that led to R64.2 billion net foreign outflows from the local bond market - levels last seen in the midst of the 2008 Global Financial Crisis. The All Bond Index finished the quarter down 3.8% with the mid and long end of the curve absorbing most of the blows. Inflation-linked bonds were even weaker, delivering -4.5%.
Listed property (South African Listed Property Index) had a good start to the second quarter, bouncing back from a first quarter rout, however, it failed to sustain that momentum, finishing the second quarter in line with its bond peers, down 2.2%.
Cash as measured by the Stefi Composite Index remained steady at 1.76% for the quarter. In terms of currency movement, the rand weakened against the US dollar, pound sterling and euro.

At an equity sector level, basic materials did most of the heavy lifting buoyed by strong commodity prices which saw the likes of BHP Billiton, South32, Sasol and Mondi all posting robust returns over the period. Consumer services buttressed the bourse, led by index bellwether Naspers, following financial results which were broadly in line with expectations. Consumer goods also posted positive returns as rand-hedge counters Richemont and British American Tobacco enjoyed the tailwinds of a weak rand. On the other hand, domestic cyclicals (interest rate-sensitivities), in particular, retailers (The Foschini Group, Truworths International and Mr Price Group), diversified financials (Discovery and Sanlam) and banks (Barclays Africa Group, Standard Bank Group, FirstRand) found no favours in rand weakness over the period with chance of rate cuts looking slim in the near term.

At a bond sector level, the 1-3 year area was the best performing sector for the quarter delivering a return of 0.27% and the 12+ year area was the worst performer returning -4.89% for the second quarter.

Fund performance:
The Absa Multi Managed Income Fund has returned 47.13% since inception, underperforming the benchmark (Stefi +2%), which returned 57.22%. The Fund returned 1.88% for the quarter ending June 2018, underperforming the benchmark return of 2.26%. During the month of June, the Fund underperformed the benchmark.

Asset allocation and portfolio positioning: The Fund has a 100% cash holding.

Fund and strategy selection: The underlying managers were collectively unable to outperform the Stefi +2% over all periods to end June 2018.

AAM High Yielding Portfolio: The AAM High Yielding Portfolio underperformed its benchmark over the quarter.

ABAM Cash Plus: The ABAM Cash Plus Portfolio underperformed its benchmark over the quarter.

AAM Money Market: The AAM Money Market Portfolio outperformed its benchmark over the quarter.

Market overview:

Global:
It was a rollercoaster introduction to 2018, witnessed by the return of volatility to global equity markets which shook leading stock markets into a mild correction in February. While global stocks remained bullish for a time on the back of healthy fundamentals, the crescendo of noise of a trade war between China and the US sent equity markets reeling towards the latter part of the quarter. By quarter-end, however, the noise had dialled down amid diplomatic murmurs from Washington which spurred the S&P 500 higher, while European and Asian equities followed suit. The party was, however, cut short as the contagion from the drubbing of Wall Street tech stock darlings (Facebook, Nvidia and Netflix) spread across the Atlantic, sending European and Asian stocks into remission.

Global bond yields rallied amid the equity sell-off and escalating trade war tensions, with the benchmark US 10-year Treasury yield falling below 2.8%. Over the quarter, and in US dollar terms, emerging market equities (MSCI Emerging Markets Index +1.4%) outperformed their developed market peers (MSCI World Index -1.3%), while global bonds (Barclays Aggregate Bond Index) closed the quarter at +1.4%. In terms of MSCI returns at a regional level, China (+1.8%), outperformed its European (-2.0%) and US (-0.8%) counterparts.

Commodities:
Commodities were down (in US dollar terms) for most of the quarter with base metals (copper, aluminium and zinc) and bulk commodities (iron ore) deep in negative territory. Most precious metals were down over the period, though gold found favour in heightened trade war tensions between the US and China. Oil ended the first quarter in positive territory with Brent and WTI up 5.1% and 7.5% respectively.

South Africa:
It has been a refreshing start to the year for South Africa with new leadership spurring renewed consumer and investor sentiment. As it has for the past decade, politics continued to dominate the headlines. Now Former President Jacob Zuma heeded his party's request and relinquished his position as Head of State with Cyril Ramaphosa assuming power mid-quarter.

The key and much-anticipated February budget speech was widely-received as fairly balanced, with the standout feature of the hike in value-added tax (VAT) an indication of a willingness by the new regime to take politically-difficult decisions in pursuit of fiscal prudence. The new cabinet appointments by Ramaphosa late in February were largely positive and welcomed by the broader public and business community, in particular the return of Nhlanhla Nene and Pravin Gordhan to oversee the maligned state finances and public enterprises, respectively.

In a huge sigh of relief, Moody's Investor Service retained South Africa's credit rating for both hard and local currency debt at their lowest investment grade rating of Baa3. The rating agency cited the improvement in domestic political risk following Ramaphosa's election as head of state and the subsequent changes made to his cabinet as key factors leading to their decision. Another major positive was the change in outlook from negative to stable, in addition to removing the "review for downgrade" appended in November 2017.

Following on from Moody's, the South African Reserve Bank (SARB) provided further relief as it lowered the repo rate by 0.25% at its March Monetary Policy Committee (MPC) meeting. The MPC cited that domestic risks had dissipated and the risks to the inflation outlook have become "more or less evenly balanced". Headline inflation, as measured by CPI, printed lower-than-expected at 4% in February, down from 4.4% in January.

In terms of currency movement, the rand firmed 4.9% against the US dollar, 1.3% against the euro and 0.8% against the pound sterling for the first quarter. This was despite some concerns over the implications of the ANC's potential wider use of land expropriation without compensation.

Bonds (JSE ASSA All Bond Index (ALBI) was the star performer in the first quarter, up 8.06% amid a conducive macroeconomic backdrop as Moody's upgraded South Africa's outlook from negative to stable, with the benchmark 10-year government bond yield rallying 15 bps in March.
Local equities could not escape the global downturn, with the FTSE/JSE All Share Index (ALSI) returning -5.97% for the quarter. The market was partly dragged down by the weakness in heavyweight Naspers (losing16.2% during the quarter and with a 15% weighting in the ALSI), but was also caused by a shocking -19.6% return from the listed property sector, as measured by the FTSE/JSE SA Listed Property Index (SAPY). This arose from persistent worries over alleged fraudulent practices at the Resilient group of four property companies, which drove share prices down by over 50% for the quarter. Financials produced -3.6%. Resources (-3.8%) and Industrials (-8.0%) also finished the quarter in red territory on the back of weaker commodity prices.
Cash as measured by the Stefi Composite Index remained steady at 1.76% for the quarter.

At an equity sector level, it was an all-round negative quarter. Financials were encouraged by banks (Standard bank Group (11.8%), Nedbank (11.5%)) and diversified financials (Santam (24.4%)), however, listed property bucked the trend. Consumer services were the biggest detractor as index heavyweight Naspers retreated for three consecutive months. Basic materials were weighed down by weak commodity prices and while Murray & Roberts and Wilson Bayly Holmes-Ovcon (WBHO) delivered solid returns, Industrials failed to crossover into positive territory.

At a bond sector level, the 12+ year area was the best performing sector for the quarter delivering a return of 10.03% and the 1-3 year area was the worst performer returning 2.62% for the first quarter.

Fund performance:
The Absa Multi Managed Income Fund has returned 44.41% since inception, underperforming the benchmark (Stefi +2%), which returned 53.74%. The Fund returned 2.48% for the quarter ending December 2017, outperforming the benchmark return of 2.26%. During the month of March, the Fund slightly underperformed the benchmark.

Asset allocation and portfolio positioning:
The Fund has a 100% cash holding.

Fund and strategy selection:
The underlying managers were collectively unable to outperform the Stefi +2% over all periods, with the exception of the 3-month period, to end March 2018.

AAM High Yielding Portfolio:
The AAM High Yielding Portfolio outperformed its benchmark over the first quarter.
ABAM Cash Plus:
The ABAM Cash Plus Portfolio outperformed its benchmark over the first quarter.

AAM Money Market:
The AAM Money Market Portfolio outperformed its benchmark over the first quarter.