Commentary for the quarter ended 31 December 2024
Performance Review
Quarterly Performance: The Northstar Managed Fund returned 1.0% for the fourth quarter of 2024, underperforming its peers amidst a challenging economic landscape. The primary detractors included local equities, which fell by 1.7%, though positive stock selection added 80 basis points (bps) to performance.
Annual Performance: Over the 12 months of 2024, the fund achieved a return of 12.0%, which was slightly below peer benchmarks. However, the fund has maintained its long-term goal, outperforming inflation by more than 5% over the last five years, demonstrating resilience and strategic asset allocation effectiveness.
Asset Class Contributions
Local Equities: Despite the market downturn, overweight positions in companies like Pepkor, Super Group, Pick n Pay, Absa, and Mr Price contributed positively. Negative performance was seen from overweight in Anheuser-Busch, Standard Bank, Sasol, and Bidvest.
Global Exposure: The fund’s 30% offshore allocation was beneficial due to the rand’s 8.3% depreciation against the dollar. Global bonds and equities underperformed, but the fund’s underweight position in global equities (17.3%) and focus on global cash helped mitigate losses.
Local Fixed Income: Through the Northstar Income Fund, the fund held inflation-linked bonds like I2025, which are set to be reinvested into similar securities and floating rate notes, taking advantage of the expected shallow rate cut cycle.
Market Outlook
Economic Backdrop 2024: The year was marked by global economic uncertainty, a strong US dollar, and volatile commodity prices, impacting South African assets. Local equities experienced headwinds due to these factors, but the diversified asset allocation within the fund provided some cushioning.
Local Economy: Anticipated growth with cautious optimism, driven by policy reforms and infrastructure investments, though still facing currency and inflation risks.
Global Influence: Continued strength in the US dollar might persist, influencing local markets. Global interest rates are also expected to fall at a more moderate pace, which is causing treasury yields remain buouyant.
Sector Outlook: Potential recovery in consumer discretionary sectors with easing inflation and interest rates, while materials might benefit from any commodity price stabilisation
Portfolio Positioning
Local Equities: Overweight relative to strategic asset allocation (47% vs. 34%), with a tilt towards industrials and materials, expecting a rebound in performance. At a stock level, the portfolio has notable overweight positions in Standard Bank, FirstRand, Gold Fields, Bidvest and BHP and underweight positions in BTI, Nedbank, Harmony and Clicks.
Local Fixed Income: Maintaining a high inflation-linked bond holding, increasing fixed bond duration and small increase in floating rate notes to capitalise on the shallower than expected interest rate cutting environment.
Global Assets: Maintained a significant offshore presence, focusing on cash, however looking for opportunities to extend duration, especially into US Treasuries as yields rise to attractive levels offering above historic average real returns.
Strategy
Asset Allocation: We will continue to monitor local and global economic indicators, adjusting our equity exposure based on market valuations and growth prospects. The fund will keep a meaningful global asset allocation for diversification and potential Rand weakness.
Sector Focus: A continued overweight in industrials (Bidvest) and materials (Gold Fields, AngloGold, BHP & Mondi) reflects our belief in these sectors’ recovery and growth potential. We will reassess consumer staples (BTI, Clicks & Bid Corp), considering their performance relative to the broader market.
Risk Management: In response to a volatile economic environment, we’ll maintain a diversified portfolio, balancing between growth opportunities and defensive positions. The strategy includes a careful selection of stocks and bonds to ensure alignment with our medium-risk profile.
Investment Philosophy: The Northstar Managed Fund aims to deliver consistent returns above inflation while managing medium-level risk. We will leverage our insights into stock picking and asset allocation to navigate through 2025’s economic landscape, aiming for both capital appreciation and income generation
