Commentary for the quarter ended 31 December 2025
P E R F O R M A N C E R E V I E W
The Northstar BCI Managed Fund delivered a steady 3.7% return in the fourth quarter of 2025, contributing to a calendar year gain of 17.5%. The fund’s annualized three-year return is 14.1%, while the five-year annualized return is 12.2%, yielding a real return of 7.2% after inflation. This consistent performance highlights our focus on real capital preservation and growth for medium-risk investors. The portfolio’s 3-year Sharpe Ratio of 1.1 further demonstrates our disciplined approach to achieving risk- adjusted returns through careful asset allocation and downside management.
Equities were once again the primary driver of returns, supported by robust local market performance and selective global exposure via our proprietary Northstar local and global equity buylists. Local equities made a significant contribution, with the fund’s 45% allocation capturing much of the FTSE/JSE Capped All Share Index’s 9.8% gain in the quarter. Globally, the 20% exposure to international equities benefited from resilient earnings in developed markets. However, Rand strength tempered returns, with the MSCI World Index delivering approximately 3.2% in USD but closer to -1.1% in Rand terms. Fixed income added steady support, with the Northstar BCI Income Fund and Northstar Global Income Fund contributing positively, yielding around 3.3% (ZAR) and 1.6% (USD) respectively.
Long-term relative performance against the peers and the 5% real return objective remains intact, reinforcing our emphasis on quality, valuation discipline, and real return objectives over short-term trends.
M A R K E T O U T L O O K
Global markets in Q4 2025 posted modest gains to cap a strong year, with equities supported by solid corporate earnings, cooling inflation, and the completion of major central bank easing cycles. The S&P 500 returned approximately 2.3%, driven by ongoing AI-related spending and strength in technology, though breadth improved in the final months. Emerging markets outperformed, gaining around 4.8%, aided by stable trade dynamics and regional growth resilience. Fixed-income returns were positive but muted, with US 10-year yields ending the quarter near 4.15% after late-year upward pressure. Commodities advanced, led by gold’s continued safe-haven and industrial demand rally of 12.6%, while oil remained range-bound on balanced supply.
Looking ahead to 2026, we expect a more cautious environment, with global GDP growth moderating to around 2.8% and inflation stabilising near central bank targets. Policy rates continue to decline; however, with limited further cuts anticipated, the focus is shifting to fiscal sustainability and productivity gains from technology adoption. Valuations remain elevated in parts of the US market (S&P 500 trailing P/E around 30x), warranting selectivity, while opportunities persist in undervalued sectors and emerging markets. Geopolitical risks and potential trade frictions bear monitoring, but no major recession is currently anticipated.
Locally, the Rand closed the year at approximately 16.6 against the US Dollar, supported by robust commodity exports (particularly precious metals), declining inflation, and positive post-election reforms boosting investor confidence. Structural challenges such as energy reliability and logistics constraints are easing gradually, supporting a brighter growth outlook. The local equity market delivered a solid quarter, with the JSE Capped SWIX returning 8.9% in Rand terms (and stronger in USD on currency gains). Resources extended gains with a 10.4% rally (precious metals +11.2%, industrial metals more modest), while financials (+18.9%) and industrials (+6.5%) benefited from rate cuts and improving consumer and business conditions.
P O R T F O L I O P O S I T I O N I N G
The Northstar BCI Managed Fund maintains a balanced, conviction-driven allocation as of January 1, 2026, with 66.4% in equities (45.3% local, 20.1% global), 30.8% in fixed income (15.5% local fixed, floating, and inflation-linked bonds, 6.5% US treasuries and global bonds), 8.8% in global cash. Local property was increased marginally to 3.6%. This positioning continues to prioritise real capital growth alongside volatility mitigation and drawdown protection.
Locally, our 45.3% equity weighting remains above the approximate 40% peer average, with an active share of 35% versus the Capped All Share Index. Overweights in financials (including Standard Bank and other banks for attractive dividends and economic recovery), consumer staples (Anheuser-Busch for defensive growth), and industrials (Bidvest and others for operational leverage) were key positive contributors. Select materials exposure (Anglogold, Valterra, Northam Platinum, Glencore, and Anglo American) benefited from green transition themes and commodity tailwinds. We maintained disciplined underweights in certain gold miners after earlier profit-taking, rotating into cyclicals poised for domestic improvement.
Globally, the 20.1% allocation to equities continues to emphasise value and quality over pure growth, with underweights in mega-cap tech (e.g., reduced Apple and Nvidia after strong runs) offset by holdings in healthcare (Elevance, Danaher) and consumer staples (L’Oréal). Buylist discipline ensures exposure to AI beneficiaries at reasonable valuations. Fixed income remains constructive: local holdings via the Northstar BCI Income Fund targeting around 9% annualized returns, and global via the Northstar Glob al Income Fund for USD yield and diversification. Elevated cash provides flexibility for opportunities in any market pullbacks, while modest property exposure aids income and inflation hedging.
Relative to select peers, the portfolio remains overweight local equities and underweight overall equities, reflecting confidence in South African recovery plays while preserving global diversification. We continue to seek robust, undervalued companies across growth, value, quality, and income themes, aligned with our long-term 5% real return objective.
