Global risk assets ended the year on a positive note following evidence of inflation reaching a peak in the major developed economies and a reduction in the magnitude of interest rate increases from the respective central banks. The MSCI All Country World Index (ACWI) recovered some of the losses experienced in prior quarters, increasing by +9.8% in US$ over the final quarter, to end the year down -18.0% (or -12.54% in ZAR).

The Ginsburg & Selby Worldwide Flexible Fund returned +5.3% in Rand terms over the quarter, outperforming the ASISA Worldwide Multi-Asset Flexible peer group benchmark, which returned +4.5%. The Fund’s South African equity exposure contributed positively to the performance over the quarter, with the Fairtree Equity Fund, Coronation Top 20 Fund and the Aylett Equity Fund returning +17.1%, +13.2% and +11.8%, respectively in Rand terms. Over the 2022 calendar year, the Ginsburg & Selby Worldwide Flexible Fund returned -6.6%, outperforming the ASISA Worldwide Multi-Asset Flexible peer group, which returned -8.0%. The negative return can be attributed to the weak returns generated by offshore assets, with the MSCI ACWI and Citigroup World Government Bond Index (WGBI) returning -12.5% and -12.9%, respectively in Rand terms The US Inflation rate slowed to 7.1% year-on-year in November, the fifth monthly decline from the high of 9.1% in June 2022. The inflation rate in the UK and Euro area similarly slowed in November, albeit remaining elevated at 10.7% and 10.1%, respectively.

The major Central Banks continued to increase interest rates, with the Federal Reserve Bank (FED), European Central Bank (ECB) and the Bank of England (BOE) all increasing their interest rate by +1.25% during the quarter. During 2022, the FED, BOE and ECB increased their interest rates by +4.25%, +3.25% and +2.5%, respectively, resulting in levels last seen before the Global Financial Crisis (2008).

In South Africa, inflation moderated slightly to 7.4% year-on-year in November, significantly above the South African Reserve Bank’s (SARB) 3-6% target. The high inflation level, in addition to the increase in inflation expectations, led to the SARB increasing the repo rate by 0.75% to 7%, a level last seen in 2017. Despite this increase and the negative sentiment toward the country after the Phala Phala report, the JSE All Bond index increased by +5.7% during the quarter to take the 2022 return into positive territory (+4.2%), all in Rands. The JSE All Share Index (ALSI) also had a strong quarter, increasing by +15.2%, to take the 2022 calendar year return to +3.6%, outperforming global equity markets which returned -12.5% in Rand terms.
Despite the weak asset prices in 2022, global corporate earnings continued to grow (+5%), leading to the valuation of the MSCI All Country World index falling from 19 times historic earnings
at the start of the year, to 15 times on 31 December 2022, in line with its long-term average.
While valuations seem to point to the global equity market being fairly valued, we have concerns that the rapid rise in interest rates will only be felt by consumers and corporates in 2023
and beyond. In a period where revenue growth may be limited given constrained consumers, corporates are faced with higher input costs and operating costs. This could lead to a decline in
margins and consequently earnings over the short to medium term, which is not currently being priced in by the market.

The Ginsburg & Selby Worldwide Flexible Fund’s look-through risk asset exposure ended the quarter at 75%, consistent with the Fund’s strategic asset allocation. The look-through offshore exposure ended the quarter at 58.1%. The Fund remains well-diversified across asset classes, regions, sectors, and investment styles. Looking forward, we expect volatility to remain elevated as market participants closely monitor corporate and economic data to evaluate the impact of higher rates and costs on corporate earnings and margins. In this environment, we remain cautious at the margin and await opportunities with a greater margin of safety before allocating capital to risk assets for the long term.