The review of the BESA All Bond Index (ALBI) in the last quarter saw no inclusions and exclusions from the index. The fund performed in line with the Index. The yield of the fund decreased from 9.12% at the end of December 2017 to 8.44% at the end of March 2018. The modified duration of the fund increased from 7.16 at the end of December 2017 to 7.60 at the end of March 2018.

The global recovery across China, Japan, Europe and the United States continued to support commodity prices and emerging market currencies in the first quarter of 2018. The Fed hiked rates by 25 basis points in their March meeting and there was growing tension in world trade between the US and China. Higher rates and potential for a trade war triggered volatility in global equity markets which posted a loss of 1.15% (MSCI World) over the quarter. In South Africa, Cyril Ramaphosa was sworn in as South Africa’s president and his State of the Nation address was favourably received. Over the quarter local property fell 19.61% (SAPY) and equities were down 5.97% (ALSI). Losses in equities were driven by poor performance of rand hedge stocks, and by a sell-off in Naspers, following the announcement it would be trimming its shareholding in Tencent Holdings. Property’s decline was due to losses in the Resilient stable. The local bond market rallied impressively to +8.06% (ALBI) over the quarter, signalling the pricing out of political risk with 10-year SA government bond yields falling sharply to their current levels of 8.04%. February’s budget offered significant fiscal consolidation with VAT being raised to 15%. National Treasury cut the size of its weekly bond auction by a third, and the SARB cut its benchmark repo rate by 25bps. The bond market momentum was further reinforced by Rating’s Agency Moody’s decision to keep the countries investment grade credit rating and improve the countries outlook to stable.

We expect continued rate increases in the US and escalating trade friction to add further anxiety to global equity markets over the short to medium term. While the changing political and economic environment is a positive for South Africa, uncertainty remains around the direction of the land restitution debate and the implications for agricultural investment and property rights.