Dynasty Ci Wealth Preserver comment - Dec 19
The ALSI enjoyed a solid performance over December gaining 3.3%. This was on the back of positive international developments leading to strength in emerging markets in general, rather than due to local factors. (Indeed, the rand was one of the best performing emerging market currencies over the last two months of the year). The risk-on sentiment was triggered by the hope of a foreseeable end to the Sino-US trade war and to a lesser degree the UK election that gave Boris Johnson an absolute majority.
Unfortunately, local economic factors and debt levels remain dire – SOE’s are in jeopardy, unemployment rates at their highest levels, and there continues to be policy uncertainty from the government. A Moody’s downgrade in March seems almost inevitable.
Despite all of this, the ALSI returned 12.1% for the calendar year, driven mainly by the resources sector.
Global markets continued along their positive path in December, with the S&P500 and MSCI ACWI gaining 3.0% and 3.6% in dollars, respectively. Both indices have had exceptionally strong performances for the year at 31.5% and 27.3%, respectively. These returns have well exceeded our own expectations, given the uncertainty that has played out throughout the year. Global recessionary fears have also eased as we look ahead into 2020.
The active Funds that Dynasty utilises offshore had excellent performances as measured in USD for the month and over the past year. The Investec Global Franchise Fund gained 3.0% in December, and 26.4% for the year, while the Fundsmith Equity Fund gained 2.7% in December and 29.8% for the year.
Reviewing these figures as well as those from our local funds, and comparing local and global performances, once again supports our preference for offshore exposure, despite the rand having ended slightly stronger for the year. This is especially since we remain deeply concerned about local prospects and the fact that the rand is being propped up by a global risk-on bias. Should this sentiment shift, we could foresee a significant sell-off in the rand, which would lead to a dramatic underperformance of local investments when measured in US dollars.
Offshore, we see much more moderate returns than those achieved in 2019 and so are evaluating mechanisms of reducing downside risk to clients’ portfolios during what we see as a potential consolidation phase.
Our local Dynasty Preserver Fund enjoyed a pleasing performance in 2019, both on an absolute as well as on a relative basis, despite the fact that rand was actually 2.5% stronger and that our domestic portfolios were positioned for a weaker rand. The Fund had a marginally negative return (-0.05%) for the month on the back of the sharply stronger local currency. However, over 2019 the Fund had gained 10.1%, this return being ahead of its peers and in line with its gross benchmark. The one, three, and five-year performances of the Fund have been 10.1%, 7.4%, and 6.3%, respectively.
The objective of this portfolio is to provide investors with income and long-term capital growth from a portfolio that maintains a low risk profile, whilst aiming to preserve capital over time.
Investments to be included in the portfolio will, apart from assets in liquid form consist solely of participatory interests in portfolios of collective investment schemes registered in the Republic of South Africa or of participatory interests in collective investment schemes or other similar schemes operated in territories with a regulatory environment which is to the satisfaction of the manager and the trustee of a sufficient standard to provide investor protection which is at least equivalent to that in South Africa. The portfolio will invest in participatory interests of underlying portfolios which provide exposure to a spectrum of equity, bond, money and property markets and may have exposure to derivatives, subject to prevailing regulations. The asset allocation in the portfolio will be actively managed and the assets will be shifted between the markets and asset classes to reflect changing economic and market conditions.