The South African equity market did not perform well year to date. The Shareholder Weighted Index (SWIX) lost 8% during the first three quarters of 2018, with the listed property shares remaining the main culprits contributing to this decline. The South African economy has failed to recover and has remained in a contractionary state printing negative GDP figures for both the first and the second quarters of the year. The rand has weakened against the US dollar and other major currencies during the third quarter, falling roughly 3% against the US dollar for the quarter. Although exporting companies will see a silver lining, this fall will see upward pressure on inflation and interest rates in South Africa, which, in turn, will have a negative effect on already subdued growth in the economy. We have seen significant increases in the fuel price in South Africa, which has reached the highest level ever. This unfortunately puts further pressure on the SA consumer.

Globally, we have seen continued tension between China and the US, as Donald Trump has imposed further import tariffs on certain goods produced in China. This trade war that started in the second quarter continued well into the third quarter, and we are yet to see whether it has come to an end. The US economy is firing on all cylinders and the latest quarter-on-quarter growth figures increased to an impressive 5.4% growth. We can see the result of this in the equities market with the S&P 500 returning 10.5% for the year in US dollar terms.

The fund outperformed SWIX over a one-year period returning 5.7% against SWIX’s return of 0.9%, gross of fees for the year. The outperformance was mainly due to overweight positions in Astral Foods, Sanlam, Namibian Breweries and Exxaro, to highlight some of the top performers in the fund. The best performing sector on the JSE for the third quarter was again the resources sector, adding 4.7% for the quarter. The fund was overweight in this sector, thus adding to the fund’s performance. The financial sector was the second best performing sector for the third quarter, adding 4.2%. The fund was overweight in this sector, thus contributing towards the overall performance in the fund versus benchmark. The industrials sector was the weakest performing sector, contracting 8.1% for the third quarter. The fund was overweight in this sector, however, the stock selection within the sector led to outperformance relative to benchmark.

Of our top 10 holdings, only Naspers, Capricorn Investment Group, Standard Bank and Astral Foods detracted from performance for the quarter, with the remaining six contributing towards performance relative to benchmark. Sanlam was the top contributor relative to benchmark, delivering a return of 12.9% for the quarter. Astral Foods was our worst performer, contracting 13.6% during the third quarter of 2018.

The Namibian listed companies that form part of our portfolio, such as FNB (-0.3%), Capricorn Investment Group (-4.6%), Bidvest Namibia (-0.1%) and Letshego Holdings (-0.5%), all contributed negatively towards the fund for the third quarter, with the exception of Namibian Breweries (2.3%), Nimbus Infrastructure Fund (4.8%) and Oryx Properties (3.9%), which added to performance of the fund for the third quarter.

The fund maintains its overweight allocations to Namibian primary listed shares, which have proven to weather these volatile circumstances well in global markets. The fund has reduced its cash position on the back of the pullback in the market.

The fund is committed to offering investors above average performance over the medium to longer term by means of exposure to a select range of large and emerging equities.

The South African equity market gave back some of the returns it generated in the preceding quarter. The Shareholder Weighted Index (SWIX) returned -6.8% for the first quarter of 2018, with the listed property shares some of the main culprits contributing to this decline. On the political front, improved clarity about the future market friendliness of South Africa contributed to positive sentiment, with Cyril Ramaphosa elected as the new South African president. This led to quite a considerable strengthening in the rand and general optimism for the South African economy. His election is, however, not a panacea and it will take a lot of action to steer the South African economy towards market-friendly principles supportive of economic growth.

Locally, the Steinhoff scandal continued, while Capitec was accused by Viceroy of having rolled its loan book and overstating the bank’s financial health. Viceroy has caused quite a bit of panic selling after its initial report on Steinhoff. The South African market also followed global markets downwards after the pullback in the tech shares in the US, as well as possible trade wars initiated by President Donald Trump.

Globally, the annual wage growth in the US sparked fears of inflation and a rise in interest rates, which had the markets pull back by roughly 10%. After nearly a full recovery in the equity market further panic erupted as Trump announced import tariffs on items such as steel from China, sparking fears of the start of a trade war. This, combined with a tech sell-off, saw markets plummet back to their quarter lows.

The fund outperformed the SWIX over one year. The outperformance was mainly due to the overweight position in Astral Foods, Sanlam and Namibian Breweries - some of the top performers in the fund. The best performing sector on the JSE for the first quarter was the resources sector, contracting 3.9%. The fund was overweight in this sector. However, the stock selection within the sector detracted from the fund’s performance. The financial sector was the second best performing sector for the first quarter, only contracting 6.5%. The fund was overweight in this sector and stock selection in the sector led to a contribution towards the overall performance in the fund versus benchmark. The industrial sector was the weakest performing sector, contracting 8% for the first quarter. The fund was underweight in this sector, which added to performance relative to benchmark.

Of our top 10 holdings, only Naspers detracted from performance, with the remaining nine counters actually adding to performance relative to benchmark. Astral Foods was the top contributor relative to benchmark, with a return of 20.7% for the quarter. Naspers, our worst performer, slumped 16.2% during the period.

The Namibian listed companies that form part of our portfolio, such as Oryx (2.8%), Namibian Breweries (15.3%), FNB (1.6%), Capricorn Investment Group (0.8%), and Nimbus Infrastructure Fund (4.8%), all had positively contributed to the fund’s performance for the first quarter, with the exception of Bidvest Namibia (-0.6%) and Letshego Holdings (-0.3%), which detracted from fund returns over the first quarter.

The fund maintains its overweight allocations to Namibian primary listed shares, which have proven to weather these volatile circumstances in global markets well. The fund has reduced its cash position on the back of the pullback in the market.