Johann has 24 years investment experience of which 14 years was spent as an equity analyst. The last 10 years were spent as a portfolio manager.
He was one of the founder members of the large cap team and played a role in designing the large cap investment process.
He is currently a member of the equity selection group at Sanlam Investment Management.
Satrix Alsi Index Fund - Sep 19
In Quarter 3, the MSCI EMEA index (which includes South Africa) fell 7.02%, which was worse than the returns of that of the MSCI Emerging Markets (EM) at -4.25% and far behind the MSCI World’s 0.53%. Year to date, the picture does not change much with the MSCI EMEA at 5.13%, relative to the MSCI EM return of 5.89% and way behind the 17.61% for the MSCI World.
The Federal Reserve and the European Central Bank both eased policies to offset signs of weaker global growth. The US economy has weakened but is not in a recession mainly due to fiscal support offsetting the adverse impact of the trade war. The inversion of the US yield curve is perceived as tolling the bell for a near-term global recession whilst Draghi also added to the call for fiscal easing.
Adding to that, commodity prices took a dive with key iron ore benchmark prices plunging some 20% in a matter of weeks and the key industrial metal, copper, hitting two-year lows. The key global manufacturing indices have also dived and are at fiveyear lows - but was at least stable over the last two months.
In the UK, Eurosceptic Boris Johnson has become the prime minister after being elected as leader of the Tories. There appears a greater likelihood of a no-deal Brexit or, at the very least, yet another postponement of the October decision deadline. The market has discounted this in large part with a weaker Sterling. As business decisions get postponed, the UK could dip into a technical recession.
In South Africa the SA Reserve Bank held the policy rate unchanged at 6.5% at its September meeting, but its statement was more dovish than in July when it did cut. For Quarter 2 of 2019, GDP was 3.1% quarter-on-quarter, above the consensus of 2.4% and reversing the first three months’ contraction. SA headline CPI accelerated from 4.0% in January to 4.5% in March and then settled around 4.3% in August 2019. Forward rate agreements are now pricing in a 25bp rate cut in the next six months.
From a SA asset allocation perspective, cash (STEFI: +1.8%) outperformed SA Bonds (ALBI: +0.8%) and the FTSE/JSE All Share Index returned -4.2% (Capped SWIX: -5.1%) in the third quarter of 2019. In dollars, the MSCI SA (-12.60%) continued to underperform the MSCI EM (-4.25%) mainly due to a weak Rand (- 6.9%). SA equities and SA bonds saw outflows of $5.7bn and $2.4bn respectively year-to-date. Properties, after stabilising somewhat over the first half of 2019, experienced a tough three months losing about -4.4%.
On the corporate side the most important news was the Naspers spin-off of Prosus, which listed on 11 September 2019. Prosus is now the largest listed EU consumer internet company.
Although the equity market experienced a tough third quarter, the FTSE/JSE All Share index (ALSI) was one of the better performing general all share equity indices for the second quarter of 2019, down 4.6%, which was in line with that of the FTSE/JSE Shareholder Weighted (SWIX), which realised a return of -4.3%.Both these indices are still in positive territory for the year to date with the ALSI about 3% above that of the SWIX.
Some of the contributors to the difference in return between these two indices could Some of the contributors to the difference in return between these two indices could be explained by the relative overweight exposures to AngloGold (ANG) and Shoprite (SHP) in the ALSI, which all had strong share price performances for the quarter. Underweight positions in counters such as the poor performing Sasol (SOL), Arrowhead (AWA) and Standard Bank (SBK) further enhanced this performance. The relative underweight in Impala (IMP), which had a phenomenal last 12 months, and British American Tobacco (BTI) negated some of the performance.
Your portfolio performed in line with its benchmark despite very regular and larger flows into your fund. This was mainly due to our optimised model portfolio outperforming the ALSI Index. One of the main reasons for this was the fact that our model avoided the significantly underperforming Arrowhead properties. Our optimised portfolio holds between 135 and 140 shares out of a possible 160 plus shares at an ex-ante active risk of between 6 and 8 basis points.
The unbundling of Prosus from Naspers all went smoothly just before the major quarterly rebalance. During the September 2019 FTSE/JSE index review there were no constituent changes implemented on the index. Weight changes happened on Anglo American and Naspers. The one-way turnover was about 1.4%.
After four mediocre years, the market is starting to move closer to our estimate of value. In addition, there has been uncharacteristic macro volatility and many corporates have scored own goals through ill-timed acquisitions and venturing beyond our shores into areas where they do not enjoy a similar dominant industry position. Regulation has also proven more severe in a number of sectors and this has forced incumbents to operate under stricter scrutiny and with limited operational freedom. However, most of these issues have been discounted in current stock prices, and we back the strong management teams to guide their companies out of their current mire.
After a difficult period for the JSE, the market is trading on a forward P/E of 13x and an attractive forward dividend yield of close to 4%.
The objective of the portfolio is to focus on achieving a total compound annual return, which will substantially equate to the compound annual return of the portfolio benchmark of FTSE/JSE All Share Index as adjusted to take into account transaction and other costs and assets in liquid form. The manager is committed to track the FTSE/JSE All Share Index with a tracking error of not more than 2% before portfolio fees.
Apart from assets in liquid form, the Portfolio will be investing in shares listed on the JSE. When investing in derivatives, the Manager will adhere to prevailing derivative regulations. The portfolio manager will invest in derivatives for cash flow management purposes, as this is more cost effective, and to enable the investment manager to achieve the objective of tracking the FTSE/JSE All Share Index more effectively.