Commentary for the quarter ended 30 June 2024
Q2 2024 Performance Review
The Northstar Managed Fund returned 3.22% for Q2, 2024 and 4.53% year-to-date.
The fund was globally exposed to the tune of about 34%, foreign equities at 16% with the balance invested in global bonds (13%) and cash 5%. Considering the rand appreciated by just over 3% against the dollar for the quarter, global returns translated into rands, negated performance.
The Global bond index returned -1.6% ($) for the quarter and negative -4.6% in rands. Against this, Northstar’s global fixed income portfolio returned +0.53% ($) and -2.5% in ZAR for the period under review.
The MSCI World Index in rands, retreated by 0.9% in Q2. Although the global stocks held in the Managed fund usually add positively to performance, this was not the case over the past quarter, returning -4.3% (ZAR).
Market outlook and portfolio positioning
Having systematically reduced exposure to overvalued global technology counters over a number of months, the global portfolio underperformed the market this quarter as technology continued to rally and in fact, buoyed the market to positive returns.
The brightest spot for returns in Q2, was domestic equities and our stocks did well, gaining almost 9% and outperforming the Capped SWIX. The fund also held SA property which returned 5.5% in Q2. A very pleasing area of returns came from the local bond market, gaining a whopping 7.5%. The fund held a hefty 15% exposure to South African fixed income assets.
SA assets have re-priced significantly over this period – bonds are now fairly valued, and our equity buy-list is no longer offering outsized returns. However, local assets could continue to perform for a protracted period but will need an improving economic backdrop to turn sustain gains.
Offshore indices on the other hand are facing future headwinds. Two factors concern us. The first is concentration risk – 10 stocks now accounting for 33% of the S&P 500, it is the largest level of index concentration ever. The second is high valuations for index dominant stocks whilst also having unsustainably high levels of profitability.
For these reasons, our equity exposure offshore is underweight and where we do have positions, the stocks held have sound return potential – they are under owned, under appreciated and have a low earnings base.
The fund is conservatively positioned and will take advantage of any opportunities that arise across markets.
