The objective of this portfolio is to provide above average growth in capital over the medium to long term. Income will be of secondary importance. The risk associated with this portfolio will be the same as the risk associated with SA equities as an asset class. Volatility of capital can occur over the short term. The portfolio will invest in liquid assets and in shares across all sectors of the JSE Securities Exchange of South Africa, (JSE Limited). The fund aims to outperform the JSE All Share Index on a total return basis, over an investment horizon of three years or more, by investing in companies that are undervalued relative to their intrinsic value. The investments are subject to rigorous, in-depth research and adhere to our pragmatic value investment philosophy. The investment manager will also be allowed to invest in financial instruments as allowed by the Act from time to time in order to achieve its investment objective. The portfolio may also invest in participatory interests of underlying unit trust portfolios. The fund may at any time hold a maximum of 30% in offshore assets.

Along with emerging markets, South African equities rebounded firmly in December with the FTSE/JSE All Share Index (ALSI) posting a total return gain of 3.3%. Increased clarity regarding trade negotiations between the US and China, and a Conservative Party victory in the UK local elections boosted the so-called risk-on trade. Global markets were strong, emerging markets leading the way with a 7.5% advance in equity prices, while the MSCI World Index gained 3.0% in US dollar terms.

The SA resources sector gained 7.0% in December, followed by industrials (+2.3%). SA financials managed to eke out a total return of only +0.7%. It was another very strong month for precious metal equities. The top SA resources equity sector performance came from gold (+19.5%) and platinum (+17.6%), followed by chemicals (+13.2%). Losing sectors were populated by industrial and financial counters. The telecoms sectors struggled again, with fixed line losing -25.7% and mobile down 9.0%.

The All Bond Index (ALBI) return of 1.9% was the best monthly performance of H2 2019. Cash returned 0.6%. SA listed property was the worst performing asset class, shedding 2.1%.

These monthly returns were instrumental for the Q4 2019 outcome. In Q4, the ALSI posted a total return of +4.6% versus -4.6% in Q3. Cash and the ALBI each posted a total return of +1.7% in Q4 (+1.8% and +0.7% respectively in Q3). Listed property was the Q4 2019 overall asset class loser with a total return of +0.6%.

The Fund recorded a return of 8.4% for the 12 months to the end of December, underperforming the benchmark return of 12.0%, but ahead of the median peer return of 7.9%. The Fund’s material underperformance relative to the benchmark was driven by our lack of exposure to gold and platinum miners over the past year.

When compared to competing general-equity unit trusts, the Fund was in the top half of the peer group over the past 12 months and remains in the top quartile of the peer group over five years.

We made no material changes to the Fund in December 2019. The improving sentiment towards some of our key investments during the month bodes well for improved performance in 2020.