Market Review

The second quarter of 2017 was filled with economic and political uncertainty. Economically, South Africa is not in a good shape; the country officially went into a technical recession after recording two consecutive quarters of negative GDP growth. Furthermore, domestic growth forecasts continue to be revised downwards. On the political front, a big fight is brewing on who will ascend to the ANC presidency and ultimately be country’s next president. The unfortunate result of all these is less focus on growing SA’s ailing economy and the risk of introduction of populist policies that will stave off investments. Because of all these and other developments, last quarter’s returns for most domestic asset classes were disappointing, in particular equities (SWIX) recorded a return of 0% compared to the cash (SteFi) return of 1.85%. The flat performance of the index reinforces the negative sentiment towards South African equity markets. This is on the back of the consensus view that most domestic companies will struggle to meet earnings expectations in the near term due to poor growth forecasts for the country.

Fund review

The last quarterly review of the FTSE/JSE Africa Index series saw the inclusion of Greenbay Properties and Sirius Real Estate to the index. The fund has been repositioned for this change.

The fund was flat for the quarter, in line with the index. Consumer services, financials and resources were the largest sectors in the fund at 30%, 27% and 14% respectively. The sectors’ contribution to the fund’s return was a mixed result. The fund benefitted from its exposure to the consumer services sector with Naspers (the largest weight in fund at 19.73% of the fund’s equity) and Bidcorp returning 9.9% and 15.5% respectively. The exposure to the resources sector was the biggest detractor from performance with Anglo American and Sasol returning -14% and -6% respectively.

Market Outlook

We believe that the current economic and political uncertainty will continue in the short term and therefore expect subdued market performance coupled with heightened volatility. However, performance of the fund should be cushioned by the significant allocation to the more defensive and less volatile industrials sector and to companies that derive most of their revenue abroad. Overall, we believe equities still present the biggest value on a risk adjusted basis relative to any other asset class in the long term.

The STANLIB Index Fund (the Fund) is a passively managed index-tracking fund. The aim is to replicate the performance of the FTSE/JSE Shareholder Weighted All Share Index (the Index) as closely as possible.

The fund is aimed at investors who seek exposure to the SWIX All Share Index at a reduced cost. This exposure is achieved by holding the index constituents in the most optimal weights that enable the fund to track the performance of the Index as closely as possible.
The fund performed in line with the index in the final quarter of 2016. The last quarterly review of the FTSE/JSE Africa Index series saw a couple of inclusions and exclusions to the index; Echo Polska Property and Hammerson Plc were included and Clientele Limited was excluded. There were also a number of changes to the free float factors and shares in issue of various constituent companies. The fund has been repositioned for these changes.
Looking ahead

We continue to maintain a tight tracking error to the index whilst keeping track of and adjusting for corporate events and index changes as and when they happen.