The investment objective of the 1NVEST Capped Property Index Tracker Fund is to achieve a total return that substantially equates to the total return of FTSE/ JSE Capped Property Index after accounting for fees and costs. The securities to be acquired for the fund will consist of shares held
by the FTSE/ JSE Capped Property Index.

The STANLIB Capped Property Index Tracker Fund will change it's name to 1NVEST Capped Property Index Tracker Fund, effective from 19 November 2019

Fund review

The fund has performed in line with its benchmark for the quarter. In the last FTSE/JSE rebalance, the index remained the same, with no additions or deletions. The fund benefited from its exposure to Capital & Counties, NEPI Rockcastle and Fortress REIT, which were the top three performers, with Capital & Counties returning 8%. However, exposure to Fortress REIT B, Hyprop Investments and Intu Properties detracted from performance, as these were the three worst performers. Fortress REIT B returned -20.4% over the quarter.

Market overview

In the first quarter of 2019 equity markets shrugged off any negative sentiment arising from the second half of 2018. The majority of equity markets across the globe recorded strong positive returns, with the MSCI World Index recording 13.5%, MSCI Emerging Markets recording 11.1% and the South African equity market, as represented by the FTSE/JSE All Share Index, recording 8%. Global growth continues at a slower pace with many of the major economies progressing to later stages of the business cycle. The less hawkish Fed provided some relief for financial conditions but the era of easy money has shifted towards gradual tightening of monetary policy. Locally, Eskom and corruption in other SOEs remain in the headlines as domestic asset classes such as bonds (ALBI), property (PCAP) and cash (SteFi) recorded gains of 3.8%,1.73% and 1.9% respectively.

Looking ahead

Against the backdrop of slowing global economic growth, there is potential for trade uncertainty to continue, resulting in higher prices and a significant drag on business and consumer confidence. We expect risk aversion will rise as the ability of developed markets and vulnerable emerging economies to weather the impact of trade wars remains uncertain. Emerging economies with sizeable dollar debts and fiscal deficits may struggle. After more than two years of steadily rising interest rates, 2019 could mark the peak for US treasury yields for the current business cycle, however the road ahead is likely to remain bumpy. Locally, uncertainty will remain high until the widely anticipated national election provides some direction on the future of SA’s economic policy. We believe investors should focus on liquid market segments with risk dialled down compared with market benchmarks.

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

Since inception the fund has performed well against its peer group and in-line with its tracking benchmark. The September FTSE/JSE rebalance saw the replacement of Greenbay Properties Ltd by Emira Property Fund Ltd as well as shares in issues and free float changes. Though property was the best performing asset class in South Africa over the last 15 years, we remain positive on future returns as currency and income diversification has increased in the sector over the recent past. This year thus far, the sector was unsettled by events surrounding Resilient and it’s three sister companies, namely, Fortress REIT Ltd; Nepi Rockcastle and Greenbay Properties, however, we expect that in the long term the fund will provide healthy returns that surpass both government bonds and cash through the cycle.

Market overview

Over the third quarter US equities led, driven by the strong growth environment and confidence in the US economy. In contrast to the attractive returns of US equities, fixed income returns have been uninspiring. Strong US data has kept the Fed on track to hike rates. Global growth has however not been as synchronised as last year. UK markets have been sensitive to suspicions of a no-deal on Brexit, and there has been a slowdown in manufacturing in the Eurozone, led by fewer exports into China. The rebound in the US dollar has made emerging markets especially vulnerable to negative sentiment and fear. Dollar denominated assets took the lead over local assets as the Rand lost 3.03% to the Dollar over the third quarter. In Rand terms foreign equity delivered the highest returns (MSCI World +8.17%) and outperformed foreign bonds (Barclays Global Treasury Bond Index +1.26%). In South Africa the second quarter saw a decline in consumer confidence and an increase in consumer spending. Cash (STEFI +1.74%), bonds (ALBI +0.81%) and inflation-linked bonds (ILBI +0.44%) outperformed both property (PCAP -2.22%) and equities (SWIX -3.34%). Seasonally adjusted GDP shrunk for a second consecutive period, driven by falling output from agriculture, transport and trade.

Looking ahead

Against the backdrop of strong US economic growth, there is potential for the trade conflict directed from the US to deepen, resulting in higher prices and a significant drag on business and consumer growth, and ultimately global growth. While growth appears healthy currently, we expect risk aversion to rise as the ability of developed markets and vulnerable emerging economies to weather the impact of trade wars remains uncertain. Additionally, emerging economies with sizeable dollar debts and sizable fiscal deficits may struggle. We believe investors should focus on liquid markets segments with risk dialled down versus market benchmarks. 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.