The STANLIB Balanced Cautious Fund produced a return of -1.2% over the past quarter ended 31 March 2018, in-line with its benchmark.

The year started off well with strong returns for risk assets in January, however, global equity markets then corrected when US wage inflation came out higher than expected. Higher inflation is a concern as it increases fears that the US Federal Reserve will have to raise interest rates faster than expected. Despite wage inflation pressure subsequently subsiding, equity volatility remained elevated as trade war concerns intensified and geopolitical tensions surrounding Syria emerged. Locally, international investors continued to purchase both SA equities and bonds on the improving outlook under new president Cyril Ramaphosa, which led to further rand strength (+4.5% stronger).

Over the full first quarter, local bonds (+8.1%) was by far the best performing asset class, with only local cash (+1.8%) also managing to produce a positive return. Local property (-19.6%) corrected the most due to corporate governance issues surrounding the Resilient group, followed by local equity (-6.8%); while offshore equity (-5.5%) and offshore bonds (-3.3%) both struggled with the stronger rand. Within the local equity market no sector was spared from the broad-based equity selloff, with Industrials (-9.5%), Resources (-6.1%) and Financials (-4.0%) all down. Looking ahead.

While we expect the equity market volatility that has picked up in the first quarter to continue as the year progresses, albeit at a lower level, it is clear that the business cycle remains strong, which is feeding into a positive outlook for earnings growth. This should support equities, which are at far more reasonable valuation levels post the first quarter’s market correction. In managing your fund, we are always cognisant of both the positive tailwinds, as well as the risks that are inevitable the longer this cycle lasts. We take out protection against market corrections when we believe it’s appropriate, but we continue to believe that exposure to a mix of diversified asset classes both locally and offshore provides you with an optimal solution to generate above inflation returns over the long term.

STANLIB Moderately Conservative Fund of Funds and the STANLIB Conservative Fund of Funds have closed and amalgamated into STANLIB Balanced Cautious Fund effective from the 23rd March 2018.