2019/05/31 00:00:00

Market overview
The last quarter of 2018 was down sharply, resulting in markets being deep in the red for the calendar year. In stark contrast, the first quarter of 2019 has been the complete opposite, recovering almost all that was lost in the previous quarter. The MSCI World Index closed the quarter 12.5% higher in dollar terms. The S&P500 finished the quarter up 13.1%, its strongest quarter since mid-2009 and its best first quarter performance since 1998. Emerging markets (EM) were also up strongly, gaining 9.9%, but continued to lag developed markets (DM) counterparts. The risk on party is back and the complimentary bar is open, for now.
The positives from trade talks and the tone of the US Fed outweighed market concerns that inverted bond yields suggest the US economy may be heading toward a recession, earnings expectations have started to slow and increased wage growth is eating into profitability. Notwithstanding the rally, these concerns have some basis. European equities bucked the global trend as they retreated 0.8% in US dollar terms, on the back of a broad economic slowdown in the region. The European Central Bank picked up on the slowdown and pledged more support for the economy, committing to keep rates unchanged this year and to add more stimulus should it be needed. This, however, sounds like a Deja vu of Mario Draghi’s ’whatever it takes’ statement in 2012.
Portfolio review
The STANLIB Multi-Manager Global Equity Feeder Fund returned 12.3% return for the quarter, marginally outperforming the benchmark. This outperformance is pleasing given that the Fund’s overweight to EMs and the health care sector would have weighed on returns. Four of the underlying managers lagged over the quarter. The largest detractors were the overweights to EMs and the health care sector. In addition, value as a style struggled over the quarter.
Sanders underperformed, with a 9% overweight to health care detracting most as it was the worst performing sector for the quarter. Exposure to financials also detracted. Disappointingly, even though technology had a good quarter, Sanders’ stock selection within the sector detracted. AB is the value-weighted beta mandate for the Fund. Their large overweight to financials hurt the most, with their stock selection in the sector also detracting. Hosking had another tough quarter. Their large overweight to EMs - more than double the benchmark weight - continues to drag on performance. Arrowstreet also detracted over the quarter. The underperformance from their large overweight to health care was largely offset by the underweight to financials. However, their stock selection across most sectors hurt. Pleasingly, the underperformance of these four managers was offset by Veritas, and more specifically Sands. Veritas was marginally up for the quarter, which is pleasing given their over 17% overweight to health care. Stock selection alpha across the portfolio was offset by sector allocation. Sands had another exceptional quarter, outperforming the benchmark by almost 4%. Stock selection contributed across all sectors.
Portfolio positioning and outlook
Looking forward, we expect more uncertainty in the second quarter. The trade talks between China and the US remain topical and risk assets may benefit if the two countries manage to resolve their differences. We expect Brexit negotiations to dominate headlines as the UK frantically tries to agree on a deal. It would appear that the probability of a Brexit delay has increased and talks of an early election or a second referendum have also resurfaced. This uncertainty has put pressure on companies with UK operations.
In SA, Moody’s gave the country a reprieve when it decided not to update its SA sovereign rating. On the back of this, the rand strengthened in early April. The big event though for SA, however, is the May elections. Post the elections, business confidence could start rising as policy direction regarding SOEs and land expropriation become clearer later in the year.