Fund review

The Namibia Managed Unit Trust produced a return of 2.8% over the quarter ended 30 September 2018.

Market overview

The third quarter of 2018 saw an increase in emerging market selling pressure, led by deeper sell-offs in Turkey and Argentina, but spread to varying degrees across other countries with China being hard hit given that they are at the centre of US president Trump’s trade war intensification leading up to the US mid-term elections in November. The investment world has been struggling to deal with an environment of stronger US GDP growth but weakening growth elsewhere. This has led to a stronger US dollar, while US bond yields continue to rise with the US Fed on a rate hiking path over the foreseeable future. This in turn has put emerging market central banks under pressure to also raise rates, but this has proved difficult in a world seeing global trade declining and hence growth and currencies under pressure. From a local investors’ perspective, the only positive was further rand weakness, which meant positive returns from offshore equities (+8.1%), offshore bonds (+2.0%) and offshore cash (+3.7%).

Within South Africa, the big news in the third quarter was confirmation of a first half recession with negative Q2 growth. This, together with the general emerging market selling pressure, saw the local equity market (SWIX) down -3.3% in the quarter led by Industrials (-7.8%) and Property (-1.0%), while Financials (+2.8%) and Resources (+5.2%) managed to buck the trend. The Industrials sector was hit by selling in some index heavyweights for different company-specific reasons, with Aspen (-34.4%), MTN (-18.8%) and Naspers (-12.4%) at the forefront.

Looking ahead

The global growth outlook is one that has shifted from last year’s synchronised growth with the US continuing to power ahead following this year’s tax cuts, while the rest of the world continues to weaken from the positive growth bias of last year. While global trade continues to slowdown as the trade war intensifies, it appears that overall global growth will stay above trend for this year and 2019. This feeds into positive earnings growth, which together with relatively cheap valuation levels outside of the US, gives a reasonably positive investment backdrop for equities.

In managing your fund, we are always cognisant of both the positive tailwinds, as well as the risks that are inevitable the longer this cycle persists.

The STANLIB Namibia Managed Unit Trust Fund produced a return of +4.1% over the past quarter ended 31 December 2017 and a return of +12.9% for the full 2017 year.

The last quarter of the year was characterised by continued improving, synchronised global growth and two significant events in South Africa during December that ensured increased volatility to end a year of high equity returns. Firstly came the news of the resignation of the CEO of large multi-national household goods company Steinhoff, amid accounting irregularities, which caused its share price to fall by 90%; followed later in the month by the conclusion of the ANC elective conference, which culminated in Cyril Ramaphosa winning the ANC Presidency. This outcome reduced the uncertain political risk that had been building throughout 2017 and was taken positively by the markets with the rand, bond markets and locally focused companies’ shares all showing strong performance into year end. Over the full fourth quarter, local equities (+9.6%) were the best performing asset class, followed by local property (+6.9%) and local bonds (+2.2%). The ongoing improvement in global growth, together with ultra-low interest rates, translated into a positive environment for risk assets globally with volatility in asset prices falling as the growth momentum gained traction. However, despite this positive backdrop, rand strength of 8.9% in the quarter following the reduced political risk meant negative rand returns for both offshore equities (-3.5%) and offshore bonds (-7.8%). From a local equity market perspective, financials (+16.0%) were the leading beneficiary of the reduced political risk, while resources (+4.9%) and industrials (+4.7%) gains were also curtailed by the stronger rand in the quarter.

Looking ahead
While it is clear that we are currently in one of the longest equity bull markets and business cycles in history, the market continues to have the strong tailwinds of improving, synchronised global growth and ongoing accommodative monetary policies by the world’s largest central banks. In managing your fund, we are always cognisant of both the positive tailwinds, as well as the risks that are inevitable the longer this cycle lasts. We take out protection against market corrections when we believe it’s appropriate, but we continue to believe that exposure to a mix of diversified asset classes both locally and offshore provide you with an optimal solution to generate above inflation returns over the long term.