Aeon Balanced Prescient Fund - Dec. 19
The Aeon Balanced Fund was up by 240 bps on a gross return basis for the forth quarter of 2019 and is up 989 bps over a one-year period. The strongest sector for the quarter ended December was Healthcare led by Aspen, Mediclinic and Life Healthcare. Aspen announced a divestment to reduce debt. General Retailers was the weakest sector for the quarter, led by Woolworths, Foschini and Truworths due to a subdued trading environ-ment and poor consumer spend outlook.
Globally, a low interest rate environment and accommodative central bank policies have continued to structurally drive markets. The uncertainty and volatility caused by geopolitical instability has continued to impede market returns. US-China trade concerns remain firmly in investor minds amid a slowing Chinese economy. Markets have become accustomed to Trump’s trade rhetoric, and with strong US employment and good US corporate earn-ings, markets have generally benefited. Investors, however, remain cautious as no firm trade deal is in place, and with the ongoing presidential impeach-ment hearings in the US, concern remains as to when a full trade deal will eventually take place. Encouragingly, Fed Chair, Jerome Powell, indicated in his FOMC statement that rates were likely to remain unchanged for a while unless a significant increase in inflation occurs.
Locally, the domestic environment was unfavourable due to the state of the local economy. Sentiment has continued to be negative as political in-fighting, economic growth obstacles, indebted parastatals and a potential downgrade remain apparent. Sentiment somewhat improved during the quarter following positive news of efforts being made to fight corruption, as well as placing South African Airways (SAA), which has been loss making for years, into business rescue. The Monetary Policy Committee also kept rates unchanged citing a likely Moody’s ratings downgrade as a key factor in their decision. However, pressure remains on government to find ways to halt the country’s fiscal deterioration. Eskom continued with rolling power black outs which has added to continued negative sentiment.
In company news, Aeon Investment Management, as a signatory of the Unit-ed Nations Principles for Responsible Investment (UNPRI) engaged with the Department of Trade and Industry (DTI) and JSE to discuss ways of increasing transparency and accountability. We recently also put through proposals to reduce inequality through transparent reporting of gender pay gaps and pay ratios of entities with more then 50 employees. Given South Africa's history and growing inequality, increased poverty and unemployment, we should not forget the responsibilities that government and business have to effectively improve South Africa's social structure. We hope these proposals are taken heed of by government and implemented into law.
Looking forward, growth expectations for the local economy seem to be de-pendent on global growth and renewed efforts by the elected officials. Glob-ally, inflation and GDP growth will be key to try gauge the timing and level of monetary policies. Astute stock picking with our Growth at Reasonable Price (GARP) philosophy that delivers superior value through the cycle and a focus on companies whose cash flows support earnings should stand us in good stead moving forward.
The AEON ABSOLUTE BALANCED FUND will be a domestic asset allocation prudential medium equity. The objective of the portfolio is to provide long term capital growth and a appropriate level of income for investors through investing in a broad range of asset classes in a balanced manner.
The Manager will invest in a diversified portfolio of equity, bonds money or property markets. The Fund will be subject to the prudential investment limits as contained in legislation from time to time. The portfolio is permitted to include investments in offshore jurisdictions subject to the investment conditions determined by the Registrar from time to time.
The portfolio may also include participatory interests or any other form of participation in portfolios of collective investment schemes or other similar schemes. Where the aforementioned schemes are operated in territories other than in South Africa, participatory interests or any other form of participation in these schemes will be included in the portfolio only where the regulatory environment is to the satisfaction of the manager and trustee and is of a sufficient standard to provide investor protection at least equivalent to that in South Africa.
Nothing in the supplemental deed shall preclude the manager from varying the ratios of securities, to maximise capital growth and investment potential in changing economic environments or market conditions or to meet the requirements, if applicable, of any exchange formally recognised in terms of legislation and from retaining cash or placing cash on deposit in terms of the Deed and any Supplemental Deeds thereto; provided that the manager shall ensure that the aggregate value of the assets comprising the portfolio shall consist of securities of the aggregate value required from time to time by the Act.
The portfolio is permitted to invest in financial instruments in line with the conditions as determined by the Registrar from time to time.