Foord Asset Management

Global equities (+0.2% in US dollars) were largely flat with emerging markets (+2.2%) continuing their strong run. Iron ore (+13.4%) and copper (+6.6%) prices continued to benefit bourses of commodity export countries.

The FTSE/JSE All Share Index (+2.7%) moved higher as resources (+5.1%), financials (+2.1%) and South African industrials (+2.0%) rose. Core holdings FirstRand (+7.1%) and Aspen (+4.9%) contributed positively while Steinhoff (-4.8%) detracted after a negative sensationalist report in a German publication.

Global bonds (+1.2%) and the gold price (+4.0%) rose towards month end as investors sought cover in safe-haven assets amidst rising geo-political tensions on the Korean peninsula.

South African government bond yields were unchanged despite July’s unexpectedly large fiscal deficit (R92bn). Given the weak domestic economic outlook and benign inflation forecasts, the managers increased holdings of high yielding government bonds offering very attractive medium-term real returns.

Precious metals including gold (+3.9%) and silver (+3.5%) rebounded on heightened geopolitical risks while oil was little changed in the month.

The rand (+1.3%) strengthened against a weaker US dollar on buoyant emerging market sentiment. South Africa’s relatively high real yields remain attractive to investors in zero interest rate developed market economies which should provide continued near-term currency support.

Foord Asset Management

European equities (+5.3%) led global markets (+2.2%) higher. The ECB delivered a more dovish taper to its QE programme in contrast to the hawkish US Federal Reserve. The FTSE/JSE All Share Index (+1.0%) ended the year strongly with local industrials, telecommunications and banks leading gains, offsetting losses in the resource sector. For the year, the index (+2.6%) underperformed cash (+7.4%) and bonds (+15.4%).The Fed increased the federal funds rate by 0.25%, the only increase in US rates for the year, on signs of further US economic vigour and labour market strength. US 10-year government bond yields soared 85 basis points in the fourth quarter, lifted by expectations for higher growth and inflation from anexpansionary Trump presidency.

In SA, weak growth and tighter monetary and fiscal policies checked inflation, despite much higher dollar oil prices and a spike in food prices. Bond yields declined across the curve and the All Bond Index (+1.6%) advanced. Gold (-1.8%) and silver (-2.6%) slid further on waning safe haven allure. Performance from the industrials metals complex was mixed as copper (-4.2%)fell and iron ore (+10.4%) rose again. Oil (+12.6%) advanced on improved demand and further temporary supply constraints - Russia and 10 other non-OPEC majors agreed to production cuts for a six-month period starting 1 January 2017.The rand (+2.6%) strengthened, ending the year much stronger against the dollar (+12.6%) and the beleaguered pound (+34.4%).

The risks to the currency remain to the downside given SA's economic prospects, political uncertainty and sizeable internal and external deficits. The Nedgroup Investments Stable Fund remains conservatively positioned with a preference for quality businesses operating predominantly abroad. Meaningful cash and precious metals ETF holdings and direct offshore assets provide protection against downside risks.