Fund Review

The fund returned +0.97% in rands during the March quarter, or an impressive +6.5% in dollars (outperforming the benchmark’s 5.9%), as the rand appreciated by +5.2% against the dollar, by +6.5% against the pound and by +0.6% against the euro. In the year to end March the fund did +17.1% in rands, or -3% in dollars (-0.2% in pounds and -7.8% in euros).

The continued high exposure of the portfolio to emerging market bonds (35.8% of portfolio) and currencies (44.6% of portfolio) finally boosted returns as emerging market equities, bonds and currencies bounced sharply, buoyed by commodity prices, US economic data, a weaker dollar and negative interest rates in Europe and Japan, which helped drive investors into higheryielding assets. Brazil, Turkey and Mexican bonds did best. The fund is upped its holding in US bonds from 28% to 36% (versus 38% for the benchmark) and remains very overweight in Mexican bonds (13.2% of fund) and the Mexican peso. Brandywine, the fund manager, prefers to show the regional allocation as 17.7% in Asia-Pacific excluding Japan, with 13.5% in Emerging Markets, 2.9% in Europe ex-Eurozone, 12.9% in the Eurozone, 3.0% in the Middle East and Africa and 49.3% in North & Central America. The fund has increased its underweight in the dollar, (25.9% from 28% last quarter, versus 43.7% for the benchmark). The fund has a tiny position in the euro of 0.8% (benchmark 24.7%) and 5.0% in the yen (benchmark 17.1%). The fund is yielding 4.1% currently, with a modified duration (sensitivity to changes in bond yields) of 7.7%, both higher than benchmark. Government-related bonds comprise 77.6% of portfolio, with 0% in high yield bonds.

Looking ahead

Brandywine, the fund manager, continues to think that ultrasupportive monetary policy, cheap energy, devalued currencies and low interest rates should make 2016 a pivotal period for global growth.

However, they still expect long-term safe-haven yields to remain capped on the upside as a result of the still formidable debt overhang, a benign global inflation environment, a low terminal level for G3 policy rates and entrenched concerns of global economic fragility. They believe that select emerging market debt offers the most attractive sources of yield and potential currency return among their investible universe.

Fund Review

The fund returned +11.7% in rands during the December quarter, or -0.1% in dollars (outperforming the benchmark's -0.9%), as the rand fell -10.8% against the dollar, -8.3% against the pound and -8.3% against the euro. In the year to end September 2015 the fund did +20.8% in rands, or -10.6% in dollars (-3.9% in pounds and +0.6% in euros!).

The continued high exposure of the portfolio to emerging market bonds (35.8% of portfolio) and currencies (47.3% of portfolio) restrained returns, despite the outperformance, with South African, Brazilian and Mexican bonds losing money, while the Mexican and South African currencies hurt too. The fund is still underweight US bonds (28% versus 39% for the benchmark) and very overweight Mexican bonds (13.7% of fund) and the Mexican peso. Brandywine, the fund manager, prefers to show the regional allocation as 18.3% in Asia-Pacific excluding Japan, with 16.4% in Emerging Markets, 4.8% in Europe ex-Eurozone, 15.9% in the Eurozone, 3.1% in the Middle East and Africa and 40.9% in North & Central America.

The fund has increased its underweight in the dollar, (28% from 35% last quarter, versus 44.8% for the benchmark). The fund has a tiny position in the euro of 0.7% (benchmark 24.2%) and 5.1% in the yen (benchmark 16.3%). The fund is yielding 4.2% currently, with a modified duration (sensitivity to changes in bond yields) of 7.8%, both higher than benchmark. Government-related bonds comprise 75.5% of portfolio, with 0% in high yield bonds.

Looking ahead

Brandywine, the fund manager, continues to think that ultrasupportive monetary policy, cheap energy, devalued currencies and low interest rates should make 2016 a pivotal period for global growth. They expect the European and Japanese economies to surprise to the upside once the impact of stimulus takes hold. Meanwhile the US economy is already advancing at lift-off speed.

However, they still expect long-term safe-haven yields to remain capped on the upside as a result of the still formidable debt overhang, a benign global inflation environment, a low terminal level for G3 policy rates and entrenched concerns of global economic fragility. They believe that select emerging market debt offers the most attractive sources of yield and potential currency return among their investible universe.