Before STANLIB, Marius was Managing Partner at Sarala Capital, responsible for strategic direction. Prior to this he worked at TT International (London & Hong Kong) where he managed the Asian Opportunities Long Short Equity Hedge Fund. He holds a BCom and MSc(Global Finance).
STANLIB Absolute Plus Fund - Sep18
The dramatic change in the investment backdrop seen in the first quarter was confirmed in Q2. Locally, the Ramaphoria rally evaporated as S.A. economic and survey data disappointed, and global investor appetite for EM assets soured. At the same time, inflation bottomed a touch below 4% end-March, and is projected to rise back to the 5-6% range as VAT hikes coincide with a weaker Rand and stronger oil prices. The Reserve Bank, whilst on hold, is clearly nervous about further adverse currency moves and has a bias to hike if necessary to contain inflationary pressures.
Global developed equities held up fairly well in Q2, with MSCI World up 2% in US Dollars. This figure however masks a material rise in day-to-day equity volatility, and ignores sharp falls in Emerging Markets equities which ended down 8%. Flows out of Emerging assets (equities, bonds and FX) became significant from mid-April, coinciding with the broad rally in the US Dollar. If anything, outflows are accelerating as EM stress spread from Turkey and Argentina through Brazil, South Africa, Asia and Eastern Europe. EM central banks have responded by moving to tighten monetary policy, but it is unclear as yet whether this has arrested the outflows. Dollar strength gained impetus from rising global trade tensions and also a weakening Chinese Renminbi as the quarter drew to a close. So long as the Dollar continues to rally, expect Emerging stresses to intensify. The Federal Reserve continues to hike interest rates at a pace of 25 basis points per quarter in response to a US economy running at full-speed, and Chairman Powell made it clear that global (ex-US) financial stresses were far down his list of concerns.
Along with turmoil in Emerging assets, trade tensions preoccupied financial markets for most of Q2, with Trump making good on his promise to wage a trade war with both China and traditional Western allies alike. Although the impact of tariffs enacted so far is only a marginal drag on growth / push on inflation, the threats of much bigger salvos to come has caused business and investor sentiment to sour rapidly. Trump’s unpredictable nature has injected a geo-political risk premium into risk asset prices which will be hard to reverse.
Against this worrying backdrop, it is important to remember that global growth remains strong, economic fundamentals in Emerging Markets are sound, the real global risk-free rate is still negative and no indicators are suggesting a recession is imminent. In many ways the abnormally low volatility / high return environment of 2017 to January 2018 was anomalous, and a more realistic perception of risk is healthy over the medium-term. We recognise that much of what we are seeing at present is typical of late-cycle environments, and we reduced our risk appetite in Q2 to reflect this. We are watching closely to see whether the global Dollar liquidity drain intensifies or not, with great attention to be paid to the US Dollar, credit spreads and stress levels in the fragile Emerging areas such as Turkey and Brazil.
The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.
The STANLIB Dynamic Return Fund aims to achieve capital growth as well as some level of capital protection over the long-term. In the short-term, the portfolio will aim to profit from rising markets and protect against capital losses in weak markets.
The portfolio will be invested in equity securities and/or non-equity securities that will comply with prudential investment guidelines for retirement portfolios. The manager will use a quantitative risk management model when selecting the securities that will be included in the portfolio. The model shall incrementally switch exposure from equities to non-equity instruments if the portfolio value drops towards a predetermined 'protective floor'.