Fund Review

The fund did +3.6% in rands and -2.4% in dollars during the third quarter of 2014, outperforming the benchmark's -3% dollar return, thanks to good performances from the equity and fixed interest portfolios. Over the twelve months to end September the fund did 17.1% in rands or 4.1% in dollars. The fund has been managed by Threadneedle Investments of London for most of 2014. The equity portion of the fund (53.7% of fund) is identical to the STANLIB Global Equity Feeder Fund portfolio. During the quarter to September, the equity and fixed interest portfolios (23.1% of portfolio) did best with returns of -2% in dollars, followed by property (10.4% of portfolio), which is the STANLIB Global Property Fund, with a return of -4%, after a sturdy +7% second quarter return, followed ironically by the nasty -6.4% dollar return from the cash portfolio, badly hurt by the big jump in the dollar relative to other currencies.

Looking Ahead

The fund manager at Threadneedle, Alex Lyle, continues to remain constructive on equities versus bonds on a relative basis, although equities are no longer cheap. He likes the prospects for Japan, where companies are benefiting from the yen's depreciation. He thinks the dollar is likely to remain strong. Global stock markets have fallen a further 5-6% in dollars since end September, extending the correction that everyone has talked about for so long. This has taken the fund's dollar price back to where it was a year ago in September 2013, presenting an opportunity to upweight.

Fund Review

The fund did 3.9% in rands and 3% in dollars during the second quarter of 2014. Year-to-date the fund is up 4.5% in rands (1.7% in dollars) and over the past twelve months the fund is up 18.5% in rands and 10% in dollars.

The fund has been managed by Threadneedle Investments of London for most of 2014. The equity portion of the fund (52.8% of fund) is identical to the STANLIB Global Equity Feeder Fund portfolio. During the quarter to June, the property allocation (10.4% of portfolio), which is the STANLIB Global Property Fund, did best with a return of 7.2% in dollars, followed by the 4.3% from the equity portfolio, then the 2.91% from the fixed interest portfolio (23.9% of fund, versus 30% for the benchmark), then cash with a return of 0.6% (13% of portfolio versus 10% for the benchmark).

The bond portfolio has 85 different bonds, mostly government and corporate bonds, including government bonds of the US, Germany, Japan, France and New Zealand, as well as a few emerging markets.

Looking Ahead

The fund manager at Threadneedle, Alex Lyle, continues to see better value in equities than in bonds. He is happy with the property allocation at just above benchmark.

Although it has been over two years since the US stock market fell by 10% or more and although a correction like this could occur at any time, the bull market remains firmly intact, even after 5.25 years. With economies neither too hot nor too cold, both inflation and short-term and long-term interest rates remain very low, which is supportive of financial assets like shares and property.

Fund Review

After an excellent final quarter of 2013 and 2013 calendar year (35.7% in rands), the fund did 0.5% in the first quarter of 2014 and 22.3% for the year to end March, underperforming its benchmark in the quarter. Threadneedle Investments from London are now managing the portfolio, using exactly the same equity portfolio (52.7% of fund versus 50% for the benchmark) as the STANLIB Global Equity Feeder Fund. The equity portfolio underperformed in the first quarter because of its overweight position in the US and Japan and underweight in Europe, although the big underweight in Emerging Markets helped. Share selection also hurt in the quarter, with strength in industrial shares offset by poor performances in financials, healthcare and consumer discretionary shares.

The portfolio is very underweight in Fixed Interest (23.7% of fund versus 30% for the benchmark) and slightly overweight in Global Property (managed by STANLIB's team) at 10.1% of fund. Property had an excellent return in the quarter, doing 7.6% in dollars, beating the benchmark's 7.1%. The Fixed Interest return was good too at 2.5%, ahead of the benchmark's 2.4% return. Even the cash return at 1.1% in dollars was good (benchmark 0.2%). The fund is overweight in cash at 13.5% versus 10% for benchmark.

Looking Ahead

Threadneedle Investments, the fund managers based in London, expect economic data to improve globally and also expect reasonable growth in earnings. They believe that shares broadly encapsulated by the "innovation driving growth" and "media content/cable" themes are attractive in the long term. They expect the earnings season to be a catalyst for a rebound in developed markets, as fundamental strengths come to the fore.

Fund review

The fund is now almost entirely managed by Threadneedle Investments in London, with the last tranche on its way to them at time of writing. The fund had a good quarter to end 2013, returning 4.9% in dollars, or 8.3% in rands. For the year to end December, the dollar return was 10.1% and the rand return a hefty 35.7%, with the rand losing 23.3% against the euro, 19.5% against the pound and 18.9% against the dollar in 2013. Looking at the assets managed by Threadneedle at year-end, the fund was 54.8% in equities, overweight relative to the benchmark's 50%. This equity portion is invested in the same fund as the STANLIB Global Equity Feeder Fund, which beat its benchmark handsomely, returning an impressive 10% in dollars in the quarter.

Some 22.5% of the portfolio is in a portfolio of bonds managed by Threadneedle, well below the 30% of the benchmark. The portfolio includes bonds in the US, UK, Japan, Canada, Australia, France and Germany. The bonds had a negative return of 0.7% in US dollars during the quarter. The cash held in the fund is 13.9% of fund, higher than the 10% of the benchmark. This achieved a return in dollars of -0.9% as both the pound and the euro gained around 3% against the dollar during the quarter. Finally, the portfolio is holding 8.7% in the STANLIB Global Property Fund, which returned -2.7% in dollars during the quarter.

Looking ahead

Broadening recoveries in the US and in Europe are likely to serve as an underpin for equities, as they are likely to boost company earnings. However, one needs to be aware that the bull market in equities has lasted almost 5 years, which is unusually long and there are few cheap shares left to buy.

With inflation at very low levels in the developed world, however, there is no sign of any hike in interest rates in the developed world, so the bull market can continue. Offshore bonds have so far taken the initial US Fed tapering in their stride and are showing positive returns in the first few weeks of 2014, although the expectation is that yields could rise (prices fall) as tapering continues. Global property offers value in a growing global economy, although there remains some risk from possibly rising bond yields.