Robert Macdonald is a portfolio manager at Satrix's smart beta and indexation investment business. He is also responsible for research and product development.
Macdonald joined SIM in 1999 working in investment operations and client services. Before joining SIM, he spent three years working in the corporate finance department of PricewaterhouseCoopers.
Macdonald completed his B.Bus.Sci (Finance) (Hons) and P.G.D.A. at the University of Cape Town (UCT), graduating in 1994 and 1995 respectively. He also qualified as a CA (SA) in 1998 from SAICA, and is a CFA charter holder, obtained in 2004.
In his spare time Macdonald enjoys sport (mainly mountain biking), reading and spending time with his family. He is married with three children.
Satrix Balanced Index Fund - Jun 19
Global equities rebounded in June as the US-China trade war ebbed and Trump backed off on some of his threats. Global growth data remained negative with further declines in PMIs. Although the 19 June Federal Open market Committee (FOMC) meeting saw no rate change, it delivered a strong statement virtually promising a rate cut at the 31 July meeting.
During the second quarter of 2019, the MSCI World Index realised a gross return of just more than 4%, outperforming the MSCI Emerging Markets Index, which managed a very modest return of 0.6% over the same period. Global bond yields continued to rally with US 10-year yields down to 2.01% and trading sub-2% for the first time since late 2016. US 10-year yields are down more than 125 basis points since November 2018.
In the first half of 2019, the MSCI World Index delivered a total return of 17.4%, outperforming Emerging Markets (+10.8%). Within MSCI World, North America was the best performing region with a return of 18.9%, followed by Europe’s 16.5% and the Pacific region’s 11.3%.
Yields on the benchmark US 10-year bond declined 47 basis points during the quarter from 2.479% to 2.005%. In its June statement the FOMC acknowledged that economic growth was slowing somewhat and in describing future interest rate changes the statement said the FOMC will ‘closely monitor/will act as appropriate’.
In South Africa weak economic data dominated the post-election headlines with firstquarter GDP falling 3.2% quarter on quarter, worse than the -1.6% Bloomberg consensus. The President’s State of the Nation Address promised little more than further Eskom bailouts and progress on spectrum auctions with few details/deadlines.
The front and intermediate bonds rallied along with developed market bonds but the back-end bonds did not follow, resulting in a sharply steeper curve. The yield on the R2023 (5-year) bond rallied 41 basis points, while the yield on the R2048 (30-year) bond rose 9 basis points. The FTSE/JSE All Bond Index (ALBI) returned 3.7% for the quarter, with the ‘belly’ of the curve delivering the best performance. The 7-12- year sector delivered a return of 4.61%.
During the second quarter of 2019, the FTSE/JSE All Share Index (ALSI) posted a total return of 3.9% versus the 8% for the first three months of 2019. SA Financials was the best performer returning 5.4%, followed by SA Industrials with a total return of 4%. SA Resources only managed a gain of 2.4% in the second quarter after the large 17.8% total return in the previous quarter. SA Bonds (ALBI) returned 3.7% after posting a similar return of 3.8% in the first quarter. SA Property managed to outperform bonds, posting a total return of 4.5%. Among the other important indices the FTSE/JSE Shareholder Weighted All Share Index (SWIX) 2.86% performed in line with the FTSE/JSE Capped Shareholder Weighted All Share Index (Capped SWIX) 2.90%.
In the first half of 2019, SA Equities was the best performing asset class, with the ALSI delivering a total return of 12.2%. SA Bonds gained 7.7%, whilst SA Property was the worst performing asset class with a total return of 6%. Cash posted a total return of 3.6%. return of 3.6%.
The FTSE/JSE SA Listed Property Index (SAPY) returned a total of 4.5% during the second quarter of 2019 against the 1.5% in the first three months of 2019. This was better than the ALSI return of 3.9%, cash at 1.8% and bonds, which returned a credible 3.8%. For the last six months the SAPY is still lagging most other major domestic asset classes, returning 6% versus 12.2% for equities, 7.7% for bonds, but still outperforming cash at 3.6%.
Equity portfolio performance, attribution and strategy
After Value signals domestically delivered an overall strong 2018 and first-quarter 2019 performance, the factor saw some profit-taking and rotation into Momentum strategies. Once again, a sector effect cannot be ignored as the positive market sentiment largely focused on Financial and Industrials counters (less value exposure) rather than Resources (more value exposure).
The Momentum signal continues to show a strong recovery since December 2018 along with general market sentiment, which has begun to entrench a trend after a period of rotating market leadership. As such, Price Momentum is now positive over a 12-month period for the first time since the second quarter of last year, illustrating the aggregative nature of its recovery. Earnings Revisions has shown more cyclicality than expected, however, over the prior quarter its behaviour is more in line with its traditional defensive role within the broad Momentum strategy - offering a more scaled-back cyclical exposure than its Price Momentum cousin.
In a reversal of fortunes, Quality continues to experience profit-taking as the equity market turnaround has shown a preference to cyclical shares. This after an extended period of a risk-off environment which provided a fertile ground for Quality factors, in particular profitability factors such as Return on Equity. Investors have been favouring stocks with high profits in order to mitigate macro challenges, and even though economic sentiment has recently been soft domestically, global sentiment has buoyed cyclical stocks and ignored stocks that have durable competitive advantages. As an aggregate signal, the combination of Momentum, Value and Quality provided a powerful signal to the portfolio, allowing the strategy to extract strong positive excess returns relative to the Capped SWIX.
From an attribution perspective, overweight positions in Telkom (TKG), Kumba Iron Ore (KIO), Anglo American Platinum (AMS), FirstRand (FSR) and Clicks (CLS) added value to the strategy over the quarter, while an underweight position in Sasol (SOL) also contributed to the outperformance over the prior quarter. Counters that detracted value from the strategy included underweight positions in MTN (MTN), AngloGold (ANG) and Standard Bank (SBK) while an overweight position in Netcare (NTC) also hurt the relative performance.
In terms of constituent changes to the Satrix SmartcoreTM Index, we added Quilter (QLT) and Harmony (HAR), while deletions were Sappi (SAP) and Sasol (SOL).
The investment objective of the portfolio is to provide investors within income and capital growth in the medium to long term by tracking the proprietary Satrix Balanced Index as closely as possible.