This is a pure equity fund that aims to replicate the FTSE/JSE Dividend Plus Index. The appeal for an investor is the alternate weighting methodology (discussed below) to the traditional FTSE/JSE Top 40, which is a market cap weighted index. The fund is rebalanced bi-annually in March and September.

All major regions and sectors around the globe posted positive returns in the final quarter of the year: MSCI World (+8.5%), MSCI Emerging Markets (EM) (+11.8%) and MSCI SA (+13.1%), in US dollars. 2019 was one of the strongest years on record for global equities with the MSCI World up 27.6% for the year. MSCI EM (+18.4%), although positive for the year, lagged significantly. Global equities rallied behind signs of stabilising global growth and moderation in trade tensions between the US and China, who in December announced that ‘Phase 1’ of an agreement had been reached. In the UK, following the Conservative Party’s win in the general election, Prime Minister Johnson’s Brexit policy is set to take centre stage in 2020. The Withdrawal Agreement is likely to be passed, allowing the UK to leave the European Union on 31 January 2020 with a pledge by the prime minister to not prolong the transition period beyond the end of 2020.

In South Africa, the main local equity indices, namely the FTSE/JSE Top 40 (Top 40) (+4.5%), FTSE/JSE All Share (ALSI) (+4.6%) and FTSE/JSE Capped Shareholder Weighted All Share (Capped SWIX) (+5.2%), were all positive in the last quarter of 2019. Despite the sell-off in November the FTSE/JSE All Bond Index (ALBI) (+1.7%) performed in line with the cash benchmark Alexander Forbes Short Term Fixed Interest (STeFi) Composite Index (+1.7%) as the risk sentiment improved in December. SA listed property as measured by the FTSE/JSE SA Listed Property Index (SAPY) (+0.58%) had a lacklustre quarter but was ahead of inflation-linked bonds (-0.9%), which was the worst performing asset class. The full year to December 2019 painted a very different picture in the case of bonds. The ALBI (+10.3%) lagged the Top 40 (+12.4%) and the ALSI (+12%). The Capped SWIX (+6.7%) and SAPY (+1.9%) were both in positive territory but struggled in comparison to other major indices.

The rand appreciated markedly as 2019 drew to a close, ending the year at R14.01 to the US dollar. South Africa experienced record-breaking stage 6 load shedding, implemented to relieve the grid due to unplanned breakdowns and prevent a total blackout. The impact could be seen in the fourth quarter performance of Industrials (-0.05%), which was flat in comparison to Resources (+13.4%) and Financials (+2.5%). Despite its low growth potential, the South African economy should, nonetheless, benefit from a renewed upturn in the country’s terms of trade. In essence, this implies increased purchasing power, which should be reflected in firmer GDP numbers in the quarters ahead, if electricity outages are restricted. Portfolio performance, attribution and strategy Globally, the fourth quarter was characterised by poor performance from Value, Quality and Momentum factors while Growth and Low Volatility once again outperformed. Value, Momentum and Low Volatility were fairly neutral for the year, while Quality and Growth managed to outperform. While there is no structural relationship between Value and Low Volatility from a historical perspective, in 2019 these factors behaved liked polar opposites, which was especially apparent from May onwards, where Low Volatility generated strongly positive and Value significantly negative returns. In September 2019 there was a significant rotation from Momentum, Quality and Low Volatility into Value, but this was short-lived and from Momentum, Quality and Low Volatility into Value, but this was short-lived and no structural shift in the trend of the Value factor performance seems to have occurred.

Locally, the fourth quarter of 2019 ended the year in strong favour of Momentum factors, as Price Momentum once again showed the strongest performance, backed up by Earnings Revisions. Quality factors performed poorly in 2019 and in the fourth quarter Return on Equity as well as Debt to Equity delivered disappointing returns. Value factors also performed poorly in the fourth quarter with Dividend Yield and Price to Book delivering negative returns. On the positive side Price to Book had a positive 2019 while Dividend Yield was one of the poorest performing factors over the year.

The Dividend Yield strategy of the fund underperformed the benchmark FTSE/JSE Shareholder Weighted All Share Index (SWIX) by 2.1% over the quarter. From a sector perspective the underweight position in platinum shares generally accounted for the majority of the underperformance.

In terms of stock selection, the largest contributions to outperformance over the quarter came from not holding Naspers as well as overweight positions in African Rainbow Minerals, Exxaro Resources, Motus Holdings, Woolworths and Kumba Iron Ore. Detractors in relative performance came from overweight positions in Telkom, JSE and Truworths as well as underweight positions in Sibanye Gold, Anglo American Platinum, Impala Platinum and Sasol.

The fund was rebalanced in September and the next index rebalancing will occur in March 2020. As at 31 December 2019 the fund is overweight Resources relative to the SWIX with a moderate underweight position in Financials and Industrials.