Market overview

A thawing in trade relations between the US and its key trading partners, better-than-expected corporate earnings, and solid US economic growth underpinned gains in developed market risk assets during the quarter. Global growth remains relatively resilient, but inflation risk is clearly on the rise. Although US growth is diverging somewhat from the rest of the world, leading indicators of economic activity suggest that global growth has peaked, and with it earnings growth. As such, some risk mitigation in 2019 is warranted as the late-cycle recovery wanes. Trade war concerns, while ever present in investors’ minds, were largely shrugged off. The Fed unanimously agreed to raise interest rates by 25bps, in line with market expectations. Also, the Italian bond yields reached a five-year high after the government unveiled plans for a sharp increase in public spending. Also, emerging market contagion was a key theme in the third quarter of this year. Locally, President Ramaphosa announced measures – both financial and non-financial – which is intended to revitalise the economy.

The MSCI World index delivered some 8.39% in rands, largely underpinned by the strong performance of the US equity markets reaching record highs. As such, the S&P 500 delivered some 7.71% in dollars, while its developed counterparts across the Atlantic struggled during Q3. Global bonds underperformed their risky counterparts, delivering 2.39% in rands, as the US 10-year bond yield weakened above the psychological 3% level. Emerging market bonds came under selling pressure in the first half of the quarter as capital flight resulted in bond spreads widening. The capitulation of emerging market central banks to raise rates did, however, place a floor under currencies and bonds. As such, emerging market bonds outperformed their developed counterparts, delivering some 4.78% in rands. Global listed property was muted during Q3, delivering some 0.10% in dollars and 3.35% in rands.

SA equities underperformed their developed and emerging market counterparts in Q3, delivering some -2.17%% in rands. The local market was largely driven lower by the Indi-25 index, which delivered some -8.25% in rands. Also, the Resi-20 and Fin-15 indices delivered 4.60% and 4.20% respectively in rands. Bond yields pushed higher during the course of the quarter, and eased somewhat in September. As such, the ALBI delivered some 0.81% in rands. Inflation-linked bonds underperformed their sovereign counterparts, delivering some 0.56% in rands. Also, local cash delivered some 1.76% in rands for the same period. SA listed property came under further selling pressure in Q3 and a derating of property relative to bonds accounted for the sector’s -1.01% return in rands. The derating was in all likelihood due to ongoing uncertainty about the FCSA and JSE investigation of insider trading against the Resilient Group.

The SMM Conservative FoF portfolio outperformed its benchmark over the quarter ending 30 September 2018, with the biggest contributor being the Truffle Low Equity Fund. The passive component, which had a large offshore holding benefiting from the weaker Rand, also contributed to the outperformance