Fund review

The STANLIB Balanced Cautious Fund delivered a return of +1.4% for the quarter ended 30 September 2019.

Market overview

Global assets continued their recovery from 2018 levels, as equities and fixed income markets continued where they left off in the first six months of the year. Recent comments and actions from central banks added to the positive sentiment prevailing in equities and bonds. Global equities delivered a strong performance year to date (+23.8% in rand terms), MSCI EM (+16.1% in rand terms) and the FTSE/JSE SWIX All Share Index (+4.3%). The Resource Sector remain the biggest positive contributor to SA performance, with a YTD performance of +13%. SA bonds also delivered positive returns in September, taking YTD performance for the ALBI to 8.4%, while the rand depreciated by a disappointing -7.1% against the dollar for the quarter.

Looking ahead

The outlook for 2019 has weakened from a global growth perspective, however a positive feature is the continued lack of inflationary pressure globally, allowing central banks to maintain accommodative monetary policies, which should act as a tailwind for risk assets.
SA and Emerging Market equities have been supported by the Fed’s dovish stance (this should limit further dollar strength) and selective stimulus by Chinese policymakers, while uncertainty around US-China trade talks has swayed market sentiment.

In SA, the SARB reacted to slow growth and low levels of business and consumer confidence by reducing interest rates by 0.25% during Q3. We expect further easing in Q4. Lower interest rates and positive developments such as the restructuring and refinancing of Eskom together with further fiscal policy announcements should be mildly positive for growth in the medium term.

The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.

Fund review

The STANLIB Balanced Cautious Fund produced a return of +5.4% over the quarter ended 31 March 2019, relative to its benchmark return of +3.7%.

Market overview

The first quarter of 2019 started with a complete turnaround after a very difficult 2018 for risk assets. The switch in messaging and actions by the world’s major central banks, led by the US Federal Reserve, to be more accommodative with their monetary policy actions spurred a rebound post the material 2018 fourth quarter equity selloff.

Despite the global growth outlook continuing to deteriorate in the first quarter of the new year, the dovish actions of the major central banks, together with easing concerns around the US/China trade tensions, pushed offshore equities (+12.9% in rand terms) to their highest quarterly US dollar return since 2010. After underperforming in the last quarter of 2018, the US equity market (+13.9%) outperformed emerging market equities (+12.4%) although offshore property (+14.5%) was the best performing major asset class, with offshore bonds (+2.5%) and offshore cash (+1.0%) also giving positive, albeit low returns in the quarter. Despite increasing concerns surrounding the local growth outlook following the return of Eskom’s loadshedding, South African risk assets followed the offshore lead to show decent gains, with the local equity market (SWIX) +6% in the quarter led by Resources (+17.8%), followed by Industrials (+7.4%) and Property (+1.5%), with Financials (-0.4%) lagging. The Resources sector included strong gains for precious metals companies, with Impala Platinum (+66%) and Sibanye Gold (+57%) leading the way, while the Industrials sector saw a rebound in some index heavyweights that had been struggling, including British American Tobacco (+29%) and Richemont (+12%). Local bonds (+3.8%) and cash (+1.8%) also produced positive returns in the quarter.

Looking ahead

The outlook for 2019 has weakened from a global growth perspective. However, a positive feature is the continued lack of inflationary pressures globally, allowing central banks to maintain an accommodative monetary policy stance, which should act as a tailwind for risk assets. Locally, the general election scheduled for 8 May is the main short-term event that could drive asset classes post Moody’s maintaining their stable outlook and investment grade credit rating on SA’s sovereign debt. 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 persists. We take out protection against market corrections when we believe it is 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 in the long term.

The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.

Fund review
The STANLIB Balanced Cautious Fund produced a return of +1.9% over the past quarter ended 30 September 2018, outperforming its benchmark return of +0.5%.

Market overview

The third quarter of 2018 saw an increase in emerging market selling pressure, led by deeper sell-offs in Turkey and Argentina, but spread to varying degrees across other countries with China being hard hit given that they are at the centre of US president Trump’s trade war intensification leading up to the US mid-term elections in November. The investment world has been struggling to deal with an environment of stronger US GDP growth but weakening growth elsewhere. This has led to a stronger US dollar, while US bond yields continue to rise with the US Fed on a rate hiking path over the foreseeable future. This in turn has put emerging market central banks under pressure to also raise rates, but this has proved difficult in a world seeing global trade declining and hence growth and currencies under pressure. From a local investors’ perspective, the only positive was further rand weakness, which meant positive returns from offshore equities (+8.1%), offshore bonds (+2.0%) and offshore cash (+3.7%).

Within South Africa, the big news in the third quarter was confirmation of a first half recession with negative Q2 growth. This, together with the general emerging market selling pressure, saw the local equity market (SWIX) down -3.3% in the quarter led by Industrials (-7.8%) and Property (-1.0%), while Financials (+2.8%) and Resources (+5.2%) managed to buck the trend. The Industrials sector was hit by selling in some index heavyweights for different company-specific reasons, with Aspen (-34.4%), MTN (-18.8%) and Naspers (-12.4%) at the forefront.

Looking ahead

The global growth outlook is one that has shifted from last year’s synchronised growth with the US continuing to power ahead following this year’s tax cuts, while the rest of the world continues to weaken from the positive growth bias of last year. While global trade continues to slowdown as the trade war intensifies, it appears that overall global growth will stay above trend for this year and 2019. This feeds into positive earnings growth, which together with relatively cheap valuation levels outside of the US, gives a reasonably positive investment backdrop for equities. 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 persists. 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 provide you with an optimal solution to generate above inflation returns over the long term.

The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.