Commentary for the quarter ended 31 December 2024
Market Performance Review
Global equities were broadly flat during the fourth quarter of 2024 (MSCI World Index: -0.1%) but delivered a very pleasing +19.1% return in US Dollars for the year. The underperformance of emerging markets continued into the final quarter (Q4: -7.8%; FY2024: +8.1%), with particularly weak returns from Latin America (-15.7%) and Asia Pacific (-7.7%). US policy uncertainty and a stronger Dollar also weighed on South African equities, which retreated by -12% (in US Dollar terms) in Q4 2024. Despite this pullback, local stocks closed the year with a respectable return of 7.4%, slightly below the MSCI EM Index.
From an economic perspective, tighter monetary conditions in the US and Europe saw a reduction in inflationary pressures during the first half of 2024, with markets firmly expecting rapid policy normalisation. However, during the fourth quarter, Donald Trump’s election as US president and concerns about related economic policies led markets to scale back expectations for interest rate cuts. In China, economic conditions remained weak as consumer confidence and the property market continued to face headwinds, despite several rounds of stimulus. Commodity markets, except for gold, were affected by weaker demand and tougher global economic conditions.
Locally, the Rand reversed much of its Q3 2024 gains against the US Dollar, closing the year at 18.75. The sharp depreciation in the currency was largely driven by global liquidity conditions rather than South Africa-specific factors. Optimism around the longevity of the Government of National Unity and the increased likelihood of significant structural reforms over the medium term remains intact.
In local currency terms, the JSE Capped SWIX Index declined by -2.1% in Q4 2024 but posted a solid +13.4% return for the year. From a sector perspective, South African financials and industrials performed well, returning +23.1% (Q4 2024: -1.1%) and +18.4% (Q4 2024: +0.2%), respectively. However, South African resources lagged, delivering -8.6% (Q4 2024: -9.0%).
Fund’s quarterly performance
The Northstar BCI Equity Fund had a strong year, returning +15.3% (net of fees), outperforming both the JSE Capped SWIX (+13.4%) and the ASISA South African Equity SA General Peer Average (+12.9%). Relative to its benchmark, the fund benefited from an overweight position in South African financials (banks, insurers), clothing retailers, and general industrials, as well as an underweight position in underperforming PGM miners. However, the underperformance of Sasol, Anheuser-Busch, and Remgro detracted from its relative performance.
Positioning And Expectations
The fund had a strong year, significantly benefitting from a rebound in SA-sensitive assets. Tougher global conditions, during the fourth quarter of 2024, however, paired back some of these gains with various SA cyclicals feeling the effect of a depreciating Rand and a heightened risk environment. We remain constructive on SA equities and believe the medium-term outlook for South African cyclicals, particularly in banks, insurers, retailers, property, and general industrials, remains broadly favourable, with attractive valuations.
It is also worth noting that, despite weak demand for commodities, the recent pullback in resource stocks has created, in our view, a better entry point for various PGM and diversified miners. We believe these offer a much-improved risk-return profile compared to a year ago.