Nedgroup Investments Opportunity comment - Jun 13 - Fund Manager Comment17 Sep 2013
Capital markets came under pressure during June as the US Fed chairman Ben Bernanke indicated that they would look to reduce their level of bond purchases in the coming months if the economy continued to improve. The prospect of a 'tapering' of quantitative easing in the US led to a sharp selloff in global equity and bond markets.
The FTSE/JSE All Share (ALSI) fell 5.7% for the month with Resources (RESI20) down 13.5%. Bond yields rose during the month and the All Bond Index (ALBI) posted a return of -1.6%. Inflation linked bonds experienced a sharp sell off with yields shifting up 50-80 basis points across the curve, which caused the index to return -5.5%. Listed property returned 4.4% for the month, recovering some of the steep losses experienced in May. Preference shares outperformed money market slightly with a return of 0.7%.
Global equities moved lower after the Fed's tapering comments with S&P500 down 1.3%, Eurostoxx down 5.8% and the UK's FTSE index down 5.2%. Emerging market equities experienced steep falls with the MSCI EM Index down 6.4% for the month, led by falls in China (-12.5%) and Brazil (-11.3%). In the currency market, the Rand gained 2% against the dollar and Euro, which was a strong performance against a backdrop of depreciating emerging market and commodity currencies.
Volatilities continued to increase as the equity markets came under pressure. The VIX rose 0.5% to 16.9% while Eurostoxx volatility rose 2.2% to 21.8%. Volatilities in South Africa jumped 4.9% to 22.3%, and are now significantly off the record low levels that have prevailed in recent months.
During June the Nedgroup Investments Opportunity Fund's performance was negatively impacted by the falling local and global equity markets. The local money market and bond component added value during the month, while the currency was a slight detractor as the Rand strengthened.
The bond sell-off continued during June and both nominal and inflation linked bonds delivered negative returns. With yields shifting upwards we began to see better value in bond yields and we increased the fund duration to 0.9 through a combination of bonds and swaps. While real yields have increased, inflation linked bonds continue to look expensive and we will continue to wait for better levels before investing. Convertible bonds performed well during the month, and they continue to provide an attractive fixed income return with upside participation.
The net equity exposure of the fund was increased from 42% to 43% as the market fall has offered greater value. The Fund remains conservatively positioned as equity valuations have deteriorated. We will continue to maintain a cautious approach and target risk exposures in the Fund accordingly.
The net effective exposure at 30 June 2013 is a function of:
- physical equity exposure (local 24%, offshore 10%);
- plus option/future strategies (could increase or decrease net exposure - currently adding about 5% to effective equity exposure);
- plus convertibles exposure (this is not the same as actual convertible holdings - currently adding about 4% to effective equity exposure).
Going forward, we will look continue to maintain a cautious approach and vary the risk in the Fund as we see fit.
Nedgroup Investments Opportunity comment - Dec 12 - Fund Manager Comment30 May 2013
Despite fears that the US economy would fall over the ‘fiscal cliff’, equity markets continued to move steadily higher in December and the JSE All Share Index returned 3.2% for the month. Financials were the best performing sector delivering 6.6% for the month, which outpaced the return of Resources (2.9%) and Industrials (2.4%). After sharp depreciation in October and November, the rand clawed back some ground in December as it appreciated by 4.9% against the US dollar and 3.6% against the euro. The market was calmed by the relatively stable ANC conference at Mangaung, where Jacob Zuma was re-elected as president of the ANC with Cyril Ramaphosa the new deputy president.
The improved sentiment towards South Africa helped to drive flows into the local bond market. The All Bond Index returned 2.3%, outperforming the money market return of 0.4% as long-bond yields fell by 20 to 30 basis points. Inflation-linked bonds returned 3% as they benefited from falling yields and the strong inflation carry during December. Listed property struggled as the sector returned 0.4% for the month, while preference shares experienced some selling pressure as they returned -1.5% for the month.
Emerging market equities had a strong month with the MSCI EM Index return of 4.9%, which outperformed the MSCI World Index return of 2%.
Global equity volatilities ticked up due to concerns surrounding the fiscal cliff. The VIX rose by 2.1 percentage points to 18% while Eurostoxx volatility rose 4.8 percentage points to 21.3%. Volatilities in South Africa bucked the international trend and continued to tick down. The South African Volatility Index (SAVI) fell 1 percentage point to a record low of 14%.
During December, the performance of the Nedgroup Investments Opportunity Fund was driven by the exposure to South African equities, bonds and inflation-linked bonds. The offshore exposure return was neutral as rising asset prices were offset by the appreciation of the rand.
After increasing our bond exposure from 2.5% to 8% in recent months, we reduced the exposure to 4% in December by selling bonds as yields fell. We will continue to look for opportunities to reduce the exposure to both bonds and inflation-linked bonds as the significant fall in yields in has made them very expensive. Convertible bonds continue to provide an attractive fixed income return with upside participation so we hold 18% in this asset class.
With the equity market having moved up strongly since the middle of the year, valuations are less attractive at these levels, while the cost of downside protection is low as volatilities have reached new record lows. We have used this opportunity to increase the amount of downside protection in the Fund, buying put options to protect half the local equity exposure. The gross equity exposure is unchanged, while the net equity exposure of the Fund was reduced from 46% to 39%. Going forward, we will maintain a cautious approach and vary the risk in the Fund as we see fit.
Nedgroup Investments Opportunity comment - Mar 13 - Fund Manager Comment30 May 2013
The FTSE/JSE All Share (ALSI) finished up 1.2% for the month of March 2013, paring the previous month’s decline. The positive performance was driven by strong performance of Financials and Industrials, which combined were up 2.7% for the month. Resources had a weak month declining 2.7%. Inflation-linked bonds (1.6%) and preference shares (1.1%) outperformed the money market return of 0.4%, while nominal bonds (0.2%) underperformed. Listed property returned 2.4% for the month, making it the top performing asset class.
In currency markets, the dollar continued to strengthen on the back of improved growth prospects in the US. The rand weakened 0.2% against the euro and 2.2% against the pound as renewed Eurozone worries emerged. Against the dollar, the rand weakened 2%, which brings the 12-month depreciation against the dollar to 16.2%. Over the last year, the rand has significantly lagged both its commodity and emerging market peers.
After moving up in February, US volatilities moved down towards record lows in March. The VIX declined 2.8 percentage points to 12.7%. The Eurostoxx volatility declined 0.1 percentage points to 20.9%. Volatilities in South Africa moved down by 0.3 percentage points to 16.5%, and remain close to their historical lows.
During March, the performance of the Nedgroup Investments Opportunity Fund was driven mostly by local fixed interest assets including floating rate bonds and convertible bonds. A volatile equity market led to a neutral contribution to performance from equities. International exposure in the Fund led to some good return enhancement.
We continue to see little value in local bonds as yields have fallen to overvalued levels. Convertible bonds continue to provide an attractive fixed income return with upside participation.
With international equities outperforming local during the month, we reduced our international equity holding slightly, while increasing our local holding. The low volatility environment means that the cost of hedging is low and we continue to look for opportunities to use options and stock overlays in order to provide downside protection in the Fund. The net equity exposure of the Fund was increased from 37% to 41%.
The net effective exposure at 31 March 2013 is a function of:
- physical equity exposure (local 20%, offshore 10%);
- plus option/future strategies (could increase or decrease net exposure - currently adding 6% to effective equity exposure);
- plus convertibles exposure (this is not the same as actual convertible holdings - currently adding about 5% to effective equity exposure).
Going forward, we will continue to maintain a cautious approach and vary the risk in the Fund as we see fit.