Market overview

Global equity markets recovered strongly from the significant selloff at the end of 2018, gaining 12.6% for the quarter as trade tensions between the two economic influences, US and China, eased. The ECB’s decision to maintain lower interest rates and the announcement of a Chinese fiscal stimulus package also contributed positively to market liquidity and confidence. SA markets rallied 3.9%, driven primarily by resources, which gained17.8% and in particular, iron ore, palladium and platinum. Low consumer confidence led to a 12% drop in retail shares. Notably higher quality rand hedges such as BTI, AB InBev and Richemont enjoyed a strong recovery from oversold levels. This has supported the overall Fund’s outperformance relative to the index.

Portfolio review

The Fund outperformed it peer benchmark by 0.75% for the quarter and continued to maintain its pleasing long-term track record relative to peers.

At an underlying manager level, the Allan Gray SA Equity Fund returned 1.8% ahead of the index for the first quarter. Performance was driven in part by holding onto the MultiChoice Group shares that were unbundled from Naspers. While the Nedgroup Entrepreneur Fund underperformed the index benchmark, it outperformed peers. Positions in Naspers and BTI contributed to performance.

The STANLIB Multi-Manager SA Equity Fund returned 5.6% for the quarter outperforming the index benchmark by almost 1.7% and 3% alpha over 12 months. Most of the underlying managers outperformed the benchmark, with Coronation being the top performer for the quarter.

STANLIB Multi-Manager Global Equity underperformed the benchmark for the quarter. Overweight positions to emerging markets and financials dragged on performance. Sanders and AB were the two worst performers. Both allocation and selection detracted from their performance. Good performance from Sands continued with another positive quarter of alpha, where stock selection contributed strongly. The fund’s one-year gross returns remain ahead of the benchmark.

Portfolio positioning and outlook

We caution that global equity markets are back to their highs, presenting some vulnerability especially as US economic activity is losing momentum. Going into quarter two, the Fund continues to have a small overweight position to global equity, and we will use rand weakness opportunities to trim this overweight. On the positive side, our underlying managers continue to see value in domestic shares. However, uncertainty surrounding the upcoming national elections and Brexit remain. The Fund is therefore, close to its strategic weight in local equities.

Market overview

The global trade war between the United States and China continued to dominate headlines during the quarter. The US intensified tariffs on Chinese goods and China retaliated. Despite the tussle between the two economic giants, the US economy remains strong. This is visible in the rally of the US dollar and their robust labour market. These positive developments gave the Fed room to hike interest rates in September from 2.0% to 2.3%.

Unfortunately, the higher developed market (DM) interest rates and stronger US dollar do not bode well for emerging market (EM) assets such as South Africa, and most EM countries saw their currencies weaken. SA fared worse than its EM peers as signs of poor economic growth surfaced during the quarter, resulting in SA moving into a technical recession.

SA equities lost 1.6% over the quarter, driven largely by poor returns from industrials. SA property fell 1.0% as Intu PLC, Hyprop and Growthpoint lost 12.6%, 5.2% and 4.9% respectively. The weaker rand provided a boost to offshore returns leading to a 7.4% return from global equities.

Portfolio review

The Fund outperformed peers by 1.5% over the quarter, resulting in the performance being ahead of peers over 12 months. The Fund’s three and fiveyear track records remain pleasing with approximately 2.5% and 1.9% alpha respectively, relative to peers.

At an underlying fund level, the Allan Gray SA Equity Fund outperformed its benchmark, given an increased exposure to Sasol and reduced exposure to Old Mutual and MTN.

The Nedgroup Investment Fund outperformed its mid/small equity peers for the quarter, continuing to add to its long-term of performance track record.

The STANLIB Multi-Manager SA Equity Fund marginally outperformed its benchmark for the quarter, while slightly lagging over the 12-month period. The longer-term performance of the fund is still recovering from the impact of Steinhoff.

The STANLIB Multi-Manager Property Fund outperformed its benchmark by 1.2% for the quarter as a result of its overweight positions in smaller UK and European-focused property companies such as EPP N.V. and MAS Plc. The fund benefited from being underweight large caps. Most notably, it was overweight the Resilient Group of companies, as they recovered.

The STANLIB Multi-Manager Global Equity Fund outperformed the MSCI ACWI IMI by 1.54% on a gross basis, in rand terms for the quarter.

Portfolio positioning and outlook

The economic outlook has not changed much from last quarter as we expect trade wars to continue to dominate headlines. In SA, asset prices have retreated to pre-Ramaphoria levels, which may provide a good entry point for local investors. Foreign outflows could also provide buying opportunities for local investors. To balance this view, the Fund has an overweight exposure to rand hedges. This would support performance should sentiment to EMs continue to deteriorate or SA’s economic conditions not improve, resulting in a weaker rand. The Fund’s continues to have an overweight exposure to global equities.