The South African equity market disappointed during the third quarter of 2019 after it had a good first half. The Shareholder Weighted Index (SWIX) decreased by 5.28% during the third quarter, with property shares returning a similar number of -5.34% for the quarter. The South African economy is still under pressure even though there was some relief in the GDP number for the second quarter of 2019, reading 3.1% annualised quarter on quarter. The rand has been weakening against the US dollar and other major currencies during the third quarter. It fell roughly 9.6% against the US dollar halfway through the quarter, then strengthened by nearly 6% in the beginning of September, just to weaken again and close the quarter at R15.16 to the USD. The weakening in the rand can mainly be attributed to trade war tensions and outflows of foreign investments.Globally, we have seen a slight uptick in the market towards the end of the quarter after a small pullback midway through. The S&P 500 increased by 1.2% over the quarter, slightly lower than the all-time high reached in July. The trade war is far from over but has already had a negative impact on growth. With some economies slowing down, central banks responded with rate cuts during the quarter to stimulate growth.

The fund outperformed the SWIX over the third quarter of 2019, returning -4.32% against the SWIX’s total return of -5.28%, gross of fees for the quarter. The outperformance was mainly due to the overweight position in Clover Industries Ltd, British American Tobacco and the underweight position in Shoprite Holdings. The best performing sector in the benchmark for the third quarter of 2019 was consumer staples, returning just over 2% for the quarter. The fund was slightly overweight in this sector, thus contributing to the fund’s performance. All the other sectors returned negative numbers for the third quarter. The energy sector was the weakest performing sector contracting 24% for the third quarter. The fund was overweight in this sector, thus detracting from overall performance.

Of our top 10 holdings, Sasol, Anglo American, Standard Bank, ABSA and FirstRand Ltd detracted from performance for the quarter, with the remaining five contributing towards performance relative to benchmark. The Capricorn Investment Group was the top contributor relative to benchmark, with a return of 2.12% for the quarter. Sasol was our worst performer, contracting 27.7% during the third quarter of 2019.

The South African equity market performed well during the second quarter of 2019 after it recovered in June. The Shareholder Weighted Index (SWIX) gained 1.9% for the second quarter of 2019. Property shares, still lagging, were only up by 1.3% for the quarter. The South African economy is clearly still under pressure, with the final GDP number for the first quarter of 2019 reading -3.2%. The rand saw weakening against the US dollar and other major currencies during the first half of the second quarter; it fell roughly 3.3% against the US dollar before strengthening by nearly 6% to close the quarter of at 14.08 to the USD. The recovery of the rand in the second half of Q2 can mainly be attributed to trade war tension easing and rate cuts in the US being factored in.

Globally, we have seen a significant recovery in the market towards the end of the quarter with all major equity indexes being positive for the second quarter and the S&P500 reaching new highs when it increased by 3.8%. The trade war is far from over, but the US and China put on the brakes, with no further tariffs put in place after their last meeting in June. There were some concerns in the US economy and talks of a rate cut in July gained momentum.

The fund outperformed the SWIX over the first half of the year, returning 8.5% against SWIX’s total return of 7.5% gross of fees for the year. The outperformance was mainly due to the overweight position in Kumba Iron Ore, Namibian Breweries and African Rainbow Minerals and underweight in Shoprite Holdings. The best performing sector in the benchmark for the second quarter of 2019 was communication services, returning 17.2% for the quarter. The fund was slightly underweight in this sector, thus detracting to the fund’s performance. The energy sector was the second-best performing sector for the quarter, returning 8.2%. The fund was overweight in this sector, thus contributing to the fund’s performance versus benchmark. The utilities sector was the weakest performing sector, contracting 17.1% for the second quarter. The fund was overweight in this sector, thus detracting from overall performance.

Of our top 10 holdings, Sasol, Capricorn Investment, Naspers, Standard Bank and FirstRand Namibia detracted from performance for the quarter, with the remaining five contributing towards performance relative to benchmark. ABSA was the top contributor relative to benchmark, with a return of 20.2% for the quarter. FirstRand Namibia was our worst performer, contracting 13.5% during the second quarter of 2019.

Namibian listed companies which form part of our portfolio which had negative total return for the quarter included FirstRand Namibia (-13.5%), Letshego Holdings (-3.6%) and Oryx Properties (-3.5%). The following shares had positive total return numbers for the second quarter of 2019: Namibian Breweries (1.9%), Capricorn Investment Group (0.9%).

The fund maintains its overweight allocations to Namibian Primary listed shares, which have proven to weather the volatile circumstances in global markets well. The fund has increased its cash position to the benchmark weight.