Melville Douglas STANLIB Medium Equity FoF -Mar 19
The Melville Douglas STANLIB Medium Equity Fund of Funds returned 6.2% for the quarter, outperforming its benchmark and peers and ranking in the first quartile in the ASISA South African Medium Equity category. Asset allocation and manager selection contributed positively this quarter, specifically the overweight position in domestic and international equities, which outperformed over the period. Domestic equity funds once again struggled to outperform the All Share index, with only 17% of funds managing to do so. The performance of the funds held was mixed but in aggregate they ranked in the 30th percentile relative to peers. Fairtree and Truffle Equity both did exceptionally well, returning 8.1% and 9.2% respectively, benefiting from their exposure to Resources stocks, particularly platinum and industrial mining counters. Nedgroup Rainmaker continued to underperform, returning 5.2%, despite being one of the better-performing funds in March, because of its underweighting in resources.
The domestic equity market made a very good start to the year, rising 8% (All Share index), its best quarter since 2009. Local markets followed global markets higher, with risk appetite improved following a more dovish US Federal Reserve stance, reducing the possibility of an interest rate hike this year, and easing trade tensions between the US and China. The contrasting performance between domestic sectors persisted, with Resources up 17.8% and Financials down 0.4%. After a good start to the year, financial stocks struggled in the latter half of the quarter on poor domestic growth concerns. Minister Tito Mboweni’s Budget in February painted a dismal picture of SA’s economy with further fiscal slippage, following additional injections into Eskom and poor tax revenue collections. The SARB lowered its inflation and growth forecasts in March, after keeping the repo rate on hold at 6.75%. The rand correlated with financial stocks, struggling in the latter half of the quarter, after appreciating 8% against the US dollar in January. The depreciation of the rand helped boost rand hedge stocks, with British American Tobacco, AB Inbev and Naspers up 29.5%, 26.7% and 18.8% respectively, over the quarter. Despite the weaker rand, domestic bonds gained 3.8% over the quarter, ignoring the domestic backdrop and following global bond yields lower. After market close on the last trading day of the month, Moody’s did not present a report on SA’s credit rating, allowing more time for the government to implement policy reform, which provides further support for the bond market and the rand over the next few months.
The domestic economic backdrop remains bleak, with growth forecasts revised downwards. Business confidence continues to decline, there is growing pressure on households’ disposable income and Eskom’s loadshedding is having serious consequences for small businesses. The slowdown in global growth is also an issue, although we have recently seen an uptick in the manufacturing and trade data. There is, despite the poor domestic backdrop, still the potential for upward earnings revisions over the next year, if the outlook improves post the 2019 election and the promised reforms and policy response are implemented. Following the recent rally in domestic equities, valuations are now fairly priced, but any green shoots of growth will further improve returns. The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.
The primary investment objective of the portfolio will be to achieve moderate capital growth over the medium to long term, while minimising the possibility of capital loss over the medium to long term.
The portfolio will exhibit moderate levels of return volatility. The portfolio aims to produce moderate inflation-beating returns over the longer term.
The portfolio is ideal for medium- and long-term investors who do not want to manage their own asset allocation and believe in the benefit of investing with more than one manager.
The portfolio will be a fund of funds portfolio. MELVILLE DOUGLAS INVESTMENT MANAGEMENT (PTY) LTD will be the investment manager for this fund. Investments to be included in the portfolio will, apart from assets in liquid form, consist solely of participatory interests of Portfolios of Collective Investment Scheme. The portfolio will be managed in compliance with the Prudential Investment Guidelines that are applicable to retirement funds from time to time. It is therefore, suitable as a stand-alone fund in retirement products where Regulation 28 compliance is specifically required.