Ginsburg & Selby SCI Growth FoF - Jun 19
Despite a brief drop in May, risk assets continued the positive trajectory in 2019, with global equity markets increasing 3.8% during the quarter in US Dollars, taking the year-todate return to 16.6%. The major themes influencing markets continued, with the threat of a global economic slowdown being countered by the major central banks reaffirming their accommodative monetary policy.
Markets started the quarter on a positive note as investor sentiment remained optimistic, underpinned by the more accommodative stance of major central banks and the prospect of a trade resolution between China and the USA.
This optimism was however tested in May, as trade tensions between China and the USA escalated once again following the Trump administration increasing existing tariffs on $200bn of Chinese goods from 10% to 25% while threatening to impose the same tariffs on an additional $325bn of Chinese goods. Tensions between the two largest nations were escalated further when the USA blacklisted Huawei, China’s largest telephone-network equipment company, citing security concerns.
The knock-on effect from this uncertain global trade environment is now beginning to reflect in global economic data, with manufacturing surveys showing weakness around the world, notably in US business surveys. These weak data points prompted the major central banks to reaffirm their stance on supporting their economies should conditions continue to deteriorate. In June, key individuals within the Fed (including the Fed president Jerome Powell) acknowledged that rate cuts may be required before the year-end to keep the economic expansion going. This led to renewed investor optimism, with markets quickly recovering the losses experienced in May.
In South Africa, politics took centre stage with the national election taking place in May. The results were mostly in line with expectations, however, uncertainty remains regarding how much power Cyril Ramaphosa has within his own party to implement the policies required to improve the economic growth in South Africa. The urgency of these policies was evident with the Q1 GDP growth release, which showed that the economy shrunk by 3.1% on an annualised basis, the worst contraction since 2009. Despite this, the equity market still managed to outperform the Global and Emerging Market index during the quarter, increasing by 3.9% in Rand terms (6.3% in US Dollars).
The Ginsburg & Selby SCI Growth Fund generated a return of -1.6% in Rand terms over the quarter, underperforming the ASISA SA Multi-Asset High Equity peer group (+1.1%).
The underperformance during the quarter was mostly as a result of the underlying managers underperforming their respective benchmarks, notably the Contrarius Global Equity fund and the Allan Gray SA Equity Fund, which fell 13.8% and 3% respectively in Rand terms.
Going into Q3, we continue to expect increased volatility as markets weigh the positives from the major Central Bank’s support against the threat to global growth as a result of the prolonged trade tension. In this opaque environment, we remain of the view that a wellbalanced portfolio of skilled, active managers is a prudent strategy to create and preserve long term value. We therefore maintain the funds current positioning with 73% in risk assets and 26.6% of the fund in offshore assets.
The portfolio aims to provide investors with a return of 3% above the South African Inflation (CPI) after all costs, measured over five –year rolling periods. The portfolio aims to deliver a stable return while providing a high degree of capital certainty over any 24-month period. The portfolio is suitable for investors with a medium term investment horizon.
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 be managed in accordance with regulations governing pension funds.