The USD dollar currency fund returned 3.54% in rand terms for the third quarter of 2017 compared to the benchmark return of 3.84%. For the year to date the return is -0.35% compared to the -0.13% of the benchmark.

The $6 billion Fund, managed by Fidelity Worldwide Investment, is a triple A rated stable net asset value liquidity fund, with a focus on security and diversification of risk, whilst delivering a return in line with money market rates. The rating is the highest possible money market rating for a money market fund by Moody’s and Standard & Poor’s. The Rand lost some ground against the dollar in the third quarter due to US dollar strength. The Rand fluctuated from 13.07 at 30 June 2017 to 13.56 at 30 September 2017.

The Rand can still suffer more losses this year due to economic and political uncertainty and a low growth environment in South Africa. The US economy expanded at an annualised rate of 3.1% over the second quarter of 2017, marking it the strongest growth rate in the year. The improvement was boosted by strong consumer spending and a rebound in government consumption with upticks of 3.3% and 0.4% respectively.

The September ISM manufacturing index rose to its strongest level in more than 13 years. The US unemployment rate was little changed at 4.4% with lower data in job creation over the quarter. August non-farm payrolls increased by 156 000, well below market expectations of 180 000. Inflation has started to pick up more recently. US CPI increased 1.9% in August, indicating the highest reading in recent periods due to rising gasoline cost. The US Federal Reserve (Fed) increased its benchmark interest rate by 0.25% in the previous two quarters. However, rates were left unchanged in this quarter and the central bank at its September meeting indicated its intention to raise rates in December. The fund continues to focus on high quality issuers, with about 61% invested in entities rated Aa3 or higher. The funds weighted average maturity was reduced to 42 days, from 51 days previously and is invested mainly in commercial paper and certificates of deposit with investment companies and bank

The USD dollar currency fund returned -1.89% in rand terms for the second quarter of 2017 compared to the benchmark return of - 2.18%. For the year to date the return is -3.75% compared to the -3.82% of the benchmark.

The $6.5 billion Fund, managed by Fidelity Worldwide Investment, is a triple A rated stable net asset value liquidity fund, with a focus on security and diversification of risk, whilst delivering a return in line with money market rates. The rating is the highest possible money market rating for a money market fund by Moody’s and Standard & Poor’s.

The rand strengthened again the dollar during the second quarter of 2017, but this was mainly due to US dollar weakness. The rand moved from 13.41 at 31 March 2017 to 13.07 at 30 June 2017. The Rand is however dependent on ongoing political risk in South Africa and is holding on after recent downgrades of South Africa’s long term foreign debt credit rating to junk status by both Standard & Poor’s and Fitch.

The Dollar weakened against the Euro and Pound during the second quarter of 2017 after a fairly stable first quarter. This benefited many foreign currencies. Stronger European growth propelled the euro (up 1.6%) and the pound regained its earlier losses (up 0.9%) after the BOE adopted a more hawkish tone. The US economy grew 1.4% on an annualised basis over the first quarter of 2017. While the number was higher than the initial estimate of 1.2%, it is still the slowest growth rate since the second quarter of 2016. GDP growth was supported by 1.1% growth in consumer spending, albeit the lowest number since 2013. Inflation was also weak, with the headline Consumer Price Index (CPI) for May rising 1.9% on an annualised basis, the smallest increase since November 2016.

Despite mixed macroeconomic data, the US Federal Reserve (Fed) raised interest rates by 0.25% in June, the central bank’s second rate increase in 2017. The central bank also mentioned that it would begin cutting its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in 2007-2009, later in the year. The initial cap for the reduction of the Fed’s Treasuries holdings would be set at $6 billion per month, increasing by $6 billion increments every three months over a 12-month period until it reached $30 billion per month.

The fund continues to focus on high quality issuers, with about 48% invested in entities rated Aa3 or higher. The fund’s weighted average maturity was increased to 51 days, from 47 days previously.

The USD dollar currency fund returned -1.9% in rand terms for the first quarter of 2017 to against the benchmark return of -1.67%.

The Rand gained against the Dollar for the first two months of 2017 but lost some of its strength at the end of the first quarter after South Africa’s finance minister was dismissed and South Africa’s long term foreign debt credit rating was cut to junk status by both Standard & Poor’s and Fitch.

However, despite this the Rand had an overall gain for the first quarter against the US dollar. The Dollar remained fairly stable against the Euro and Pound during the first quarter of 2017 after gaining significantly during 2016.

The $5.3 billion Fund, managed by Fidelity Worldwide Investment, is a triple A rated stable net asset value liquidity fund, with a focus on security and diversification of risk, whilst delivering a return in line with money market rates. The rating is the highest possible money market rating for a money market fund by Moody’s and Standard & Poor’s.

The US economy expanded faster than expected in the fourth quarter, at an annualised rate of 2.1%, higher than previous estimates but lower than the third quarter reading of 3.5%. Consumer confidence in the US also rose in March, beating consensus expectations of a small decline. On a year-on-year basis, home prices are rising across the US, increasing from December’s revised 5.5% to 5.7% in January. The ISM manufacturing index eased slightly in March, weighed down by slowing output. The indicator dipped to 57.2 from 57.7 in February but managed to beat market expectations of a steeper fall. Headline inflation accelerated further from 2.5% in January to 2.7% in February, hitting the highest level since February 2012. The Federal Reserve’s Open Market Committee (FOMC) hiked short term interest rates by 0.25% at its meeting in March. The Fund continues to focus on high quality issuers, with about 49% invested in entities rated Aa3 or higher. The Fund’s weighted average maturity was increased to 47 days, from 43 days previously.

Fund Review

The rand gained versus the dollar in three of the quarters of 2016. In the last quarter it appreciated only slightly from 13.71 at end September to 13.69 at end December. For the year to end December 2016, the rand rose sharply from 15.46 at end 2015 to 13.69 at end 2016, a gain of 11.5% or 12.6%, depending on whether you calculate the gain using the rand or the dollar. Your fund, managed by Fidelity Worldwide Investment, is a triple A rated stable net asset value liquidity fund, with a focus on security and diversification of risk, whilst delivering a return in line with money market rates. The rating is the highest possible money market rating of Moodys and Standard & Poors. The fund, $4.2bn in size, does not use derivatives and has not experienced any negative returns to date, including during the mighty 2008/9 stock market crash and great recession. The fund has a weighted average maturity of 41 days of the money market instruments in its portfolio, which typically range between thirty to forty different issuers.

Looking Ahead

The dollar had a very strong 4th quarter of 2016, gaining some +6.4% against the euro and +4.9% against the pound (+7.2% on a trade-weighted basis). For the year it gained +3.1% against the euro and +16.3% against the pound. There are signs that it may be embarking on a short-term correction in mid-January, although the chart of the trade-weighted dollar indicates plenty of further potential upside.

The rand has been driven by sentiment towards emerging markets and to a lesser extent commodity currencies. So far both are still quite positive, but local politics remains a risk, as does a possible downgrade in mid-year.