Commentary for the year ended 30 September 2023
Developed and emerging market equities fell in September returning -4.3% and -2.6% respectively. These losses also coincided with a weak performance from global bonds with the Global Bond Aggregate Index falling by -3.2% during the month.
While the market appears to be hopeful that the Federal Reserve has “engineered” a soft landing for the US economy, the probability of this outcome has diminished over the past few months as high frequency data has deteriorated. Commodity prices were also broadly weaker as precious and industrials metals came under increasing pressure, while energy prices continued their upwards trend with brent crude and coal prices jumping a further +9.7% and +7.1% respectively. The effect of higher interest rates increased geopolitical tensions and higher energy prices into year-end are likely to continue to add uncertainty and volatility to markets.
The JSE Capped Swix Index was down -2.6% during the month, dragged down by a poor performance from SA financials and industrials, which declined by -3.8% and -4.1% respectively. SA resources were up +1.2%, primarily driven by a strong rebound in energy stocks and offset by a poor performance from industrial and precious metals.
The Prime General Equity Fund was down -3.3% in September, behind the (ASISA) SA Equity General peer group (-2.4%) and marginally below the JSE Capped Swix, which was down 3.0%. The local equity component, which accounts for 73% of the fund, performed in-line with the local market returning -2.6% on grossed-up basis, while its offshore component fell -5.7% (in Rand terms) marginally underperforming the MSCI World Index. Overall, the inclusion of a healthy offshore equity component has been very beneficial to the fund’s performance year-to-date as global equities at an index level have outperformed the local market by a staggering 23% in Rand terms.
The fund benefitted from a rebound seen in various domestic high conviction calls which include Mr Price and Santam, in addition being under-weight Richemont, which has been under severe price pressure. While the main detractor from performance was a lack of energy-related stocks. The offshore stocks that meaningfully added to performance in September included L3Harris, Blackstone and Elevance Health, but the fund’s skew towards high quality companies, strained performance over the month as bond yields sold off aggressively and cyclical stocks – such as oil do better during these rate episodes.
In a world that is increasingly ugly from a geopolitical and economic perspective, we are encouraged to inform investors that the stocks on both our local and global buy lists are at levels that are attractive. By following our buy lists and allocating capital to the companies that constitute these lists when they are cheap, has historically been very rewarding to patient investors. We believe the same pattern will unfold henceforth.