Andrew joined Grindrod Asset Management in early 2013 and is currently a Portfolio Manager. Andrew has worked as a Product Development Analyst at Symmetry within the Old Mutual Group and then in the offshore hedge fund division at Maitland. Prior to joining Grindrod Asset Management, Andrew worked at Insinger de Beaufort BNP Paribas, a boutique asset manager and family wealth office. The company’s head office is in Amsterdam and the parent company BNP Paribas is based in Paris. As a member of the investment committee Andrew was responsible for global fund research, analysing all investment products including the more exotic asset classes of hedge funds and structured products. He was also responsible for much of the reporting and analysis of client portfolios including attribution reports and compliance with GIPS reporting standards. He also traded and balanced all offshore and local private client investment mandates and was actively involved in the management of the South African Fund of Funds within the firm.
Bridge Diversified Pref Share comment - Sep 19
Markets continued to see-saw in September with global politics driving sentiment up, followed quickly by disappointments and fear. As the see-saw ride runs longer, anxiety in markets rises further and volatile gyrations in price movements become more severe. Sentiment towards markets that are considered more risky (like emerging markets) wane and currencies decline as the safe-haven of the US dollar finds extra support. Oil markets were jolted in mid-September when a drone attack launched a strike on one of Saudi Arabia’s main oil refinery plants. Around 10% of oil supply was immediately affected and taken out of supply, driving oil prices higher. The attack was initially claimed by a rebel group in Yemen, however Donald Trump quickly set to Twitter, laying the blame on Iran. This stoked fears that the US could quickly be pulled into a middle-east war where there was no clear evidence who the enemy really was. Separately, towards the end of September, a whistle-blower emerged claiming that President Donald Trump improperly requested the Ukraine to investigate Joe Biden’s son for fraud in exchange for foreign aid. This was seen as a deliberate attempt to use his presidential powers to influence the outcome of the upcoming 2020 election race. Joe Biden, a democrat, is seen as one of his main competitors. A debate has begun to consider impeachment of the president.
Non-farm payrolls in the US for August disappointed slightly, adding only 130,000 new jobs, lower than the 160,000 forecasted. Once again, the biggest shortfall appeared in manufacturing where job growth has largely evaporated. Unemployment remained steady at 3.7% with a slightly increased labour participation rate of 63.2%, up from 63.0% in July. Inflation rose 1.7%, slightly behind expectations of 1.8%, but core inflation (excluding food and energy prices) did rise faster at 2.4%. The lower job growth over the past couple of months and a marked slowdown in manufacturing supported the Federal Reserve Committee’s decision to cut rates again in September from 2.25% to 2.00%. The market anticipates that there will be at least one further rate cut in the US this year and likely one more early next year. That will see the Fed Funds Rate fall back to 1.50%. US GDP growth in the second quarter of 2019 (on the third and final estimate) was confirmed in line with expectations of 2.0% quarter-on-quarter annualised.
Britain shut down parliament after Boris Johnson appealed to the queen that shutting parliament was the best strategy to complete the Brexit process given how obstructive ministers in parliament were being. Both Conservative and Labour MP’s were regularly defecting from party lines, causing stalemates in finding a potential solution over issues like the Irish boarder “Backstop” as Britain separates from the European Union. The courts in the UK later agreed that the manner in which parliament was closed was illegal and that in fact Boris Johnson had lied to the queen in his discussions. The courts also agreed that parliament must seek a deal with the EU. The deadline of 31 October remains a pivotal date that now appears impossible to meet with a deal. The most likely outcome right now appears to be an extension of the deadline. Inflation in the UK rose a moderate 1.7% in August and GDP grew 1.3% in the second quarter. The Bank of England left rates and asset purchase targets unchanged. Eurozone GDP rose less at only 1.2% in the second quarter with consumer prices rising 1.0% in August. Industrial production and manufacturing both remain in decline for the UK and the Eurozone.
In South Africa, the SACCI Business Confidence Index reached the lowest level (89.1) since April 1985 when the United Nations called for the most intense sanctions to be imposed on SA to discourage the pursuit of apartheid policies. The RMB/BER Business Confidence Index also reflected a similar sentiment with a reading of just 21, meaning approximately 80% of respondents were discouraged about business sentiment. This was the lowest reading in two decades. September was characterised by violent protests and shop looting due to unrest against foreigners operating businesses in SA and the high levels of unemployment. Moody’s provided some support for the sovereign rating with a ‘stable’ outlook, making comments that the large portion of rand denominated debt compared with foreign denominated debt favours the country’s ability to withstand currency devaluations and maintain debt payments to holders. Only 10% of SA debt is foreign denominated. The Reserve Bank kept rates unchanged citing the attack on Saudi Arabia and rising oil prices as the reason for inflationary risks remaining to the upside in the near term. The budget speech however was delayed by a week to 30 October, indicating concern about delivering a credible budget. Inflation rose just 4.3% in August, slightly above the 4.2% expected but below the middle of the target band of 3% to 6%. Moody’s will announce their next review on 1 November.
Preference shares gained 2.67% in September following other asset classes higher with a return of confidence to global markets. The SA equity, SA listed property, SA nominal bond, and SA inflation-linked bond markets rose by 0.19%, 0.30%, 0.53%, and 0.41% respectively. SA asset classes generally underperformed global benchmark indices due to a negative shift in sentiment towards emerging markets that depend on oil imports, following the attack on a Saudi Arabian oil facility in the middle of September. The yield on the R186 government bond rose 10 basis points to 8.30% at end of the month.
The Bridge Diversified Preference Share Fund rose 2.12% in September with several dividends being received in the month. The largest gains were from Grindrod, Sasfin, Investec (INPR), and Standard Bank each rising 8.01%, 5.26%, 4.74%, and 4.55% respectively. Netcare and Investec (INLP) were the only two holdings that declined, falling 1.23%, and 1.11% during the month. The pre-tax yield of 10.11%, and a net (after-tax and fees) yield of 7.35% for the Bridge Diversified Preference Share Fund, offers an attractive real yield relative to cash and bonds for the medium term.
The Bridge Diversified Preference Share Fund provides investors with an above average after-tax yield in the form of dividends. This will be achieved by diversifying the portfolio's holdings across various preference shares and dividend yielding assets. A minimum 80% will be invested in preference shares classified as share capital in their respective issuers balance sheet. Tax free instrument by virtue of S12T of the Income Tax Act.