Global economic indicators have been upbeat this quarter, as the disinflationary drags that have weighed on growth over the past two years are now fading. Global consumer confidence is now at expansion highs, while global business confidence recently nearly reached a six-year high. Equity prices have reacted positively to these indicators.

In the US, the Federal Reserve raised its benchmark interest rate to a range between 0.75% and 1%, its second rate hike in three months. The US economy has mostly met the Central Bank’s goals of full employment and stable prices, and may get further support if President Donald Trump delivers promised fiscal stimulus. China’s metals-intensive ‘old economy’ continues to grow. Property sales volumes are improving countrywide, despite the slowdown in the major cities, where the People’s Bank of China (PBoC) has cracked down on excessive speculation.

All the positive global developments were unfortunately negated in South Africa at the end of March, with the well documented cabinet re-shuffle. The political instability has led to an S&P credit downgrade, which in turn caused some major price moves in the currency, bond and share markets. The JSE benefitted from the Rand weakness with strong price appreciation in Rand hedge shares. Gold shares were the best performing mining sector, as investors increased hedging positions. Banks and SA Inc. shares came under severe pressure at month-end.

The unfolding of these events create huge uncertainty, and will most likely cause serious structural headwinds to economic reforms, as well as financial markets. Against this background, our equity managers are predominantly focused on blue chip companies, with a strong global earnings footprint.

The Managed Fund delivered 1.86% during Q12017 relative to the 2.90% return of the benchmark. The biggest contribution to the overall return came from the fixed interest exposure, with bonds delivering a respectable 2.46%, despite the sell-off witnessed at the back end March. Whilst the SA equity market was the strongest asset class for the quarter, with a return of 3.30%, our managers lagged the Index slightly for the period. This was due to their overweight Rand Hedge exposure, which initially detracted for most of the quarter, but came back strongly at the end of the quarter. The property sector, being a more geared interest rate play, sold off most aggressively towards the end of March, and produced a return of 1.37% which was less than cash with a return of 1.9%.