The Fund’s return for the first quarter was -0.24% in rand terms compared to the benchmark return of -5.34%. Performance attribution was split nearly equally between bonds and currency, with the underweight position in developed country bonds and the overweight position in developing country bonds being the main contributor.

The Mexican peso delivered most of the currency-related total return, and the balance came from the British pound, Norwegian krone, Malaysian ringgit, South African rand, and the Polish zloty. The fundamental driver of the positive currency performance was the underweighting in the U.S. dollar, which was weaker amid concerns over trade, policy direction, and inflation. On the bond side, attribution came from South Africa, Mexico, and Brazil. Longer-dated South African sovereign bonds contributed significantly to returns. South African assets rallied during the quarter in the wake of new African National Congress (ANC) leadership and President Jacob Zuma’s resignation, with the stabilizing political backdrop leading to increased prospects for government reform and improving business confidence. Unhedged exposure to longer-dated Mexican bonos also contributed favourably to performance. Brazilian assets were among the better performers, supported by the government’s renewed reform agenda, moderating inflation expectations, rising oil prices, and attractive yields. An overweight and unhedged position in Brazilian sovereign bonds had a positive impact on performance. In addition, the underweight in U.S. Treasuries produced positive attribution owing to the large weight given to U.S. Treasuries in the index and the sell-off during the first quarter.

Stronger growth and increasing expectations for an expedited end to monetary easing in the Eurozone and Japan sent the euro and yen higher, and the portfolio’s underweight exposure to these currencies was the largest detractor from returns. A lack of exposure to many core and peripheral European bonds also impacted performance somewhat. Spanish, Italian, and French intermediate- and long-term government bonds rallied during the quarter, supported by strong regional growth, abating election risks in Italy, prospects for on-going reforms, and attractive yield spreads over German bunds. Lastly, exposure to the Swedish krona dragged moderately on returns. The currency was impacted by a host of factors, including soft economic data, a weak housing market, a dovish central bank, and new concerns over the impact of a trade war on the country’s open economy. On the policy front, the Fed increased the interest rate range to 1.50–1.75% at its March meeting. This was the first interest rate hike under new Fed Chairman Jerome Powell.