Asset class returns were mixed in May on the back of no major shifts in sentiment. Global asset classes all rose during May. Developed market equities rose 1.78%, lagging emerging markets, which returned 2.80% in US dollar. Global bonds returned 1.5% while global property returned 0.94% in US dollar. Locally, the FTSE/JSE All Share Index was marginally lower, falling 0.42% driven lower mostly by the resources sector. Within the resources sector platinum stocks were particularly hard hit. Large cap stocks (mostly industrials) edged higher while mid and small cap stocks fell. Nominal bonds was the best performing local asset class, returning 0.98% in May, while property, inflation-linked bonds and cash returned 0.11%, -0.08% and 0.63% respectively. Bonds would have received a boost during the month as inflation came in lower than expected at 5.3% from 6.1%, opening the door for a potential interest rate cut during the course of the year. The rand was mixed against major currencies, strengthening against the US dollar and British pound but weakening against the euro and Japanese yen.

As a result funds with a larger weighting towards bonds and foreign holdings generally performed well. These would mostly include flexible income strategies as well as offshore equity funds.

Despite the fairly strong run in equities this year they remain fairly priced at current levels. We therefore maintain a reasonable allocation to risk, holding a combination of managers with complementary investment styles, which should protect capital in a negative market event. We remain of the view that in light of continuing uncertainty in global markets investors should maintain a fair diversification across asset classes and investment styles. In this way investors are able to better navigate market volatility.

Equity-centric funds thus drove returns over the quarter, particularly offshore equity strategies (especially emerging markets). Among the equity-focussed funds, those with lower exposure to banks would have outperformed. Over one year, more conservative flexible income strategies tended to outperform.

The local political events towards the end of the quarter were certainly concerning and the consequences thereof are likely to affect our markets further in the coming months. While investors have reason to feel concerned with the future of our nation we believe that through investing in a diversified mix of assets and fund managers one can navigate through the uncertainty. Staying the course and not reacting to news flow is paramount to preserving and creating wealth and we continue to monitor markets closely to understand the investment environment locally and abroad.