The first quarter of 2017 was a good one from an equity investor..s perspective as Global Equities outperformed yield assets such as bonds and property. Politics played a significant role in market sentiment coming into 2017 as the promise of pro-business policies and infrastructure spending in the US drove markets higher. Improving global economic data improved the sentiment further. Locally, the period was overshadowed by the last few days of the quarter as President Zuma opted to press ahead with a Cabinet reshuffle. The most notable changes were that of Finance Minister Gordhan and his deputy, Mcebisi Jonas, who were removed from their positions following months of speculation about their future. The news caused a slump in the rand and a spike in bond yields and led to an outcry from business leaders, as well as politicians outside and some within the ruling party. In early April rating agencies Standard & Poor..s and Fitch subsequently downgraded South Africa..s sovereign credit ratings in light of the changes.

Global equities (6.4% in USD) comfortably outperformed global bonds (2.1% in USD) over the quarter while global property (2.3% in USD) performed in line with bonds. Global emerging market equities and bonds benefitted from the higher risk appetite during the period as they returned 11.14% and 3.78% respectively in USD. Despite the volatile end to the quarter, local equity markets performed well as the FTSE/JSE All Share Index returned 3.78%, driven mostly by large rand hedge industrial stocks such as Naspers, Richemont and British American Tobacco. Financial stocks performed well up until the end of the quarter as the recall of the finance minister from an offshore investor roadshow and removal of the finance minister through the Cabinet reshuffle caused the price of bank stocks to fall dramatically. The resources sector had a mixed quarter, with the sector as a whole ending the period higher. Similar to bank stocks, nominal bonds and listed property performed well up until the Cabinet reshuffle. Despite the strong sell-off in the asset classes at the end of the quarter, both still managed a positive return as nominal bonds returned 2.5% while property returned 1.4%. Inflation-linked bonds and cash returned -0.7% and 1.8% respectively. Despite the rand weakness at the end of the quarter, the currency strengthened relative to the US dollar over the period.

Equity-centric funds thus drove returns over the quarter, particularly offshore equity strategies (especially emerging markets). Among the equity-focussed funds, those with lower exposure to banks would have outperformed. Over one year, more conservative flexible income strategies tended to outperform. The local political events towards the end of the quarter were certainly concerning and the consequences thereof are likely to affect our markets further in the coming months. While investors have reason to feel concerned with the future of our nation we believe that through investing in a diversified mix of assets and fund managers one can navigate through the uncertainty. Staying the course and not reacting to news flow is paramount to preserving and creating wealth and we continue to monitor markets closely to understand the investment environment locally and abroad.

Funds with a more defensive approach and larger cash holdings performed better during the quarter as flexible fixed income funds performed well. Funds with larger local and emerging market equity exposure typically struggled, as well as those funds which had exposure towards global bonds and property.

The year 2016 will certainly be remembered as a tough one for investors as uncertainty mounted and sentiment swayed frequently and dramatically throughout the year. It..s in these difficult periods that investors need to maintain a clear focus of their investment objectives and act accordingly to make considered, unemotional investment decisions. Market risks remain and we maintain the belief, as we have throughout the year, that in these uncertain markets maintaining a diversified blend of risk appropriate strategies is the most appropriate method for creating wealth in the long term.