Graviton SCI Capital Growth comment - Sep 2018
As we move into the final quarter of the year, it seems evident that the US market needs to cool, or the rest of the world needs to do some catching up. Though global growth is still relatively resilient, inflation risk is clearly on the rise, driven by higher commodity prices and tight labour markets. The most recent global manufacturing PMIs are consistent with a healthy underlying growth rate, but leading indicators of economic activity suggest that global growth has peaked, and with it earnings growth. Despite this positive backdrop, investors continued fretting about emerging market assets, as the recent currency crises in Turkey and Argentina fuelled worries about contagion. Locally, President Ramaphosa announced a stimulus package, which is intended to revitalise the economy. Also, the SA Reserve Bank decided to keep the repurchase rate unchanged at 6.5%, amidst the local economy unexpectedly contracting for a second consecutive quarter in Q2, largely because of a sharp drop in agricultural output.
As the rand strengthened some 3.53% in September, the MSCI World index returned -2.87% in rands. The MSCI EM index underperformed its develop market counterparts and delivered some -3.93% in rands, largely driven by weaker Asian markets. As developed market bond yields rose, the JP Morgan Global Aggregate delivered some -4.20% in rands. Emerging market bonds fared better, outperforming their developed market counterparts, delivering some -0.72% in rands. The recent dislocations should lead to value entry points opening up in some quality and value parts of equity markets. But, as monetary policy tightens in developed markets, the ability of emerging markets to fend off inflationary pressures is being tested. Furthermore, the global listed property market derated, and delivered some -5.37% in rands.
The ALSI underperformed its developed and emerging market peers in September largely driven by the stronger rand, and delivered some -4.17% in rands. The Indi-25 and Fin-15 indices delivered some -8.07% and -1.96% respectively in rands, while the Resi-20 index inched 0.34% higher in rands. The SA 10-year bond yield weakened during the course of the month. However, as US bond yields rose, the differential between emerging market bond yields and the US bond yield narrowed generally as the broader emerging markets experienced a relief rally. As such, the ALBI delivered a muted 0.30% in rands. Over the month inflation-linked bond yields were largely unchanged and the asset class is now offering an attractive inflation plus 3% virtually across the yield curve. Inflation-linked bonds outperformed their sovereign counterparts, and delivered some 0.43% in rands. The SAPY delivered some -2.60% in rands as the dividend yield pushed higher. Domestic cash returned 0.57% in rands for the month.
The objective of this portfolio is to provide investors with steady capital growth and to offer a return of at least inflation plus 4% over a rolling three year period. The portfolio will aim never to have a negative return over any one year period.
The Manager shall seek to obtain this objective through active management of a portfolio of assets which comprises a combination of equities, fixed interest, bonds and money market instruments and property. The portfolio may also invest in collective investment schemes in property as well as any other securities that the Act may allow from time to time. When investing in derivatives, the manager will adhere to prevailing derivative regulations. The portfolio will be managed in accordance with regulations governing pension funds.
Apart from the above, the portfolio may also invest in participatory interests of 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 Trustee shall ensure that the investment policy set out in the preceding clauses are adhered to; provided that nothing contained in this clause shall preclude the Manager from varying the proportions of securities in terms of changing economic factors or market conditions or from retaining cash in the portfolio and/or placing cash on deposit.
The Manager will be permitted to invest on behalf of the Graviton Sanlam Collective Investments Capital Growth Fund in offshore investments as legislation permits.
For the purpose of this portfolio, the manager shall reserve the right to close the portfolio to new investors on a date determined by the manager. This will be done in order to be able to manage the portfolio in accordance with its mandate. The manager may, once a portfolio has been closed, open that portfolio again to new investors on a date determined by the manager.