The fund returned 2.26% and 10.03% for the quarter and year respectively exceeding the benchmark (STeFI Call Deposit +2.0%) which returned 2.11% and 8.77%. On a rolling one -year period, the fund beat the enhanced cash benchmark by 1.26%.

Equities (ALSI Total Return) were the top performer forthe quarter at +4.64%, followed by Cashat +1.74% (STEFI Total Return), Bonds at+ 1.73% (ALBI Total Return Index) and Property at +0.58%. Inflation-linked bonds returned-0.91% for the quarter. Overarolling 12-month basis, Equities were the top performer at+12.05%, followed by Bonds at +10.32% and Cash at +7.29%. Property posted the lowest return of +1.93%.

The US Federal Reserve announced its last policy rate decision for the year, maintaining the Fed Funds target rate range at 1.50% to 1.75%. The Fed cut rates three times over the course of 2019. The FOMC stated that the labour market continue store main strong, house hold spending is rising at a strong pace, but that business investment remains weak. Inflation continue store main below the 2.0% target. The dot plot now expects rate store main unchanged in 2020, with one hike each in 2021 and 2022.

The US House of Representatives impeached President Donald Trump on charges of abuse of power and obstructing of Congress.The Senate will hold a trial early in 2020 to decide whether the president should be convicted on the charge sand removed from office.With the Republicans holding the majority in the chamber, the expectation is for President Trump to be acquitted.

The US 10-year Treasury yield traded 25bps higher (1.67%to1.92%) at quarter end, while the Dollar Index weakened significantly from 99.38 to 96.39. 3-Month USD Libor decreased to 1.91%, down 18 bps and 90 bps QTD and YTD respectively.

Europe an yields continue to move higher: the German 10-year generic yield became less negative, trading 18bps higher at month-end at -0.19%, while the French 10-year yield rose 17 bps and moved into positive territory, closing the month at 0.12%

The Bank of England (BOE) kept interest rates unchanged at 0.75% at their last meeting of the year on the 19th of December. Two members voted for a 25bp cut inrates citing the lower growth outlook and a turn in labour markets as concerns. The committee voted unanimously to hold the stock of gilt sand corporate bonds at GBP435bn and GBP 10bn respectively. Inflation is expected to remain below the bank’s 2.00%target until late in to 2021. The UK held their general electionson the 12th of December, which resulted in a resounding victory for Boris Johnson’s Conservative Party.The election outcome should provide Mr Johnson’s Brexit plan passing Parliament, however a lot of uncertainty around the future trading agreements remains.

The Commodity Research Bureau (CRB) indices recovered in the fourth quarter. The CRB Commodities Index returned 3.6%(-1.9% YTD), with the CRB Metals Index returning 4.4% (-9.4% YTD). The CRB Food Index returned 4.8%. At quarter end, Brent traded at USD 66.00, up 8.6% for the quarter.The rand price per barrel was flat for the quarter as ther and appreciated by 7.88% against the dollar ,trading at ZAR926.89 per barrel (+0.3%). Platinum (+9.5% QTD, +21.5% YTD), copper (+8.0% QTD, +3.4% YTD), palladium (+16.1% QTD, +54.2% YTD), and gold (+3.0% QTD,+1 8.3% YTD) performed strongly.
The J.P. Morgan Emerging Market Bond Index traded slightly higher at 881.83 at quart erend (up 2.1%). The JPM EMBI Spread closed the quarter at 298.02 (down25.42 bps).

The J.P. Morgan Emerging Market Bond Index traded slightly higher at 881.83 at quart erend (up 2.1%). The JPM EMBI Spread closed the quarter at 298.02 (down25.42 bps).

Emerging Market 5-year Credit Default Swap spreads tightened: Turkey’s spread tightened the most (-75.85bps), followed by Mexico (-36.96bps), Russia (-30.81bps), SouthAfrica (-30.09bps) and China (-16.50bps). The VIX Index, which measures risk sentiment, traded lower at the end of the quarter at 13.78 from 16.24.

Over the quarter, ther and appreciated against most of the major currencies, including the British pound (+0.6%), the Australian dollar (+4.1%), the US dollar (+7.9%), the Euro (+5.1%) and the Japanese yen (+8.2%).

The South African Reserve Bank (SARB) kept the repo rate unchanged at 6.50% at the November MPC meeting. Two members preferred rates to be lowered. The QPM now project sa 25bp cut in the third quarter of 2020, in contrast to the September meeting where the model showed no changes over the period. The Governor reiterated that the committee‘ would like to see inflation expectations anchored closer to the mid-point of the inflation target range on a sustained basis’. The MPC assesses the risk to inflation as balanced. Head line inflation came in at 3.6% y/y for November, in line with expectations, down from 3.7% y/y in October. The 0.1% decline in the number is at tributed to a declinein the transport component. Food inflation remained stable at 3.5% y/y.

The third quarter GDP disappointed after printing at-0.6% q/q, evenless than the expected 0.0% q/q. Growth moderated to 0.1% y/y. Six of the 10 sectors contracted in the quarter, with the biggest decline coming from mining (-6.1% q/q), transport (-5.4%) and utilities (-4.9%). The trade sector and general government services sector managed to grow by more than 2.0% q/q. General sentiment is however still weak amid growing concern of the under whelming pro-growth reform traction and an increasingly fragile global economy.

State-owned enterprises (SOEs) are continuing to put fiscal pressure on the SA government. SouthAfrican Airways was placed under business rescue and has since entered aprocess to allow‘ radical restructuring’ under which the carrier will receive R4bn in funding. This process will however allow SAA to continue operating. Electri city producer Eskom has implemented loadshedding towards the end of the year as sabotage contributed tore cord power cut sa cross SouthAfrica. Eskom warned that the power system continues to remain ‘vulnerable and unpredictable’

The current account deficit widened to 4.0% of GDP from 2.9% previously, the highest level since 1Q19. The figures reflect aweak trend in exports while imports rebounded. The value of net gold exports dropped for the third quarter in a row.

In November, Moody’s kept SouthAfrica’s rating at investment grade, but changed the outlook to negative from stable. Moody’s also significantly changed SA’s position on the scorecard, moving it down two notches, from the Baa1-Baa3 range, to the Baa3-Baa2range (Baa3 is investment grade, while Ba1 is non-investment grade). Then extrating decision will take place in March 2020. In December, Fitch kept SouthAfrica’s long term foreign and local currency debt ratings at BB+, one notch below investment grade, with an egative out look. According to the ratings agency, SA’s ratings are constrained by low growth, high and rising government debt, large contingent liabilities as well as the risk of rising social tension due to high in equality. Ther ating show ever remain supported by as trong institution al frame work, a favourable government debt structure and deep local markets.

The trend in these condary credit market continued over the past three months as investors hunted for yield-enhancing assets both globally and locally. Significant over subscriptions in public auctions of corporate debt has continued to push primary market issuance spreads to the bottom-end of auction price guidance levels.

The quarter presented opportunities for tactical duration positioning which contributed positively to the fund’s performance. The fund in creased duration to 0.54 years (from 0.44 years) over the quarter, offering agross running yield of 9.06%. The fund aims to enhance total return through value opportunities that, on a risk-adjusted basis, achieve or exceedour objective of Cash (STeFI Call Deposit) +2.0%.