Fund review

The STANLIB Global Balanced Feeder Fund returned +7.5% over the quarter compared with +7.9% from the composite benchmark. Asset allocation had a small negative impact overall. This was mainly due to the overweight exposure to cash. Selection effects detracted. A positive contribution from the fixed income portfolio was offset by negative contributions from the other portfolios.

Market overview

The MSCI ACWI returned 0.1% in dollar terms, with a stronger dollar eroding returns from overseas assets. The Bloomberg Barclays Global Aggregate bond index returned 0.7%, driven by falling core bond yields, and credit spreads were little changed. Bonds and equities were both aided by the expectation that key central banks would ease their monetary policy, which transpired. The Federal Reserve cut US rates in July and September. The ECB made one rate cut and also announced that it would resume its bond purchase programme, among other stimulus measures. Core bonds benefited from the economic uncertainty, and the Treasury yield curve inverted at the 2- and 10-year points – often seen as a recession signal. In dollar terms, Japan was the best performer among the major equity regions, thanks to a rally in September as US-China relations improved and the yen weakened. The US and UK also outperformed. Europe ex UK fell, though this was due to currency moves. Asian and emerging markets were the worst performers as investors preferred safer havens. The strong dollar was another headwind.

Looking ahead

The cycle is clearly mature, but we do not believe the end is imminent – rather it is being extended and redefined by a combination of structural factors leading to low interest rates, low inflation and ongoing moderate growth. Our central case is that US growth should continue to slow in 2019 as the impact of fiscal stimulus rolls off. Inflation should remain under control and valuations continue to be fair, leaving a generally benign environment for investors. In recent months we have become less constructive on the outlook for equities, given ongoing trade tensions, increasingly patchy economic data, falling earnings expectations, and our forecast of fewer rate cuts in the US and Europe than are currently priced in. Within fixed income, we have become more positive on corporate bonds: slow but positive global economic growth, gentle inflation and dovish central-bank policy tend to create a sweet spot for credit investing. Leverage among US companies, compared to European peers, is a concern but we believe there are opportunities within specific industries and regions. The energy, telecoms, and food and beverage industries have previously raised leverage, but a number of companies in these areas are now reducing debt.

The fund changed sectors from Global--Multi Asset--Medium Equity to Global--Multi Asset--High Equity on 1 Nov 2019.