Kyle has over 16 years of multi organizational investment experience and is an accomplished money manager. He brings experience from established industry players such as Cadiz Asset Management, Prescient Securities and Symmetry where he occupied portfolio management roles in the absolute return space.
Sygnia International Flexible FoF - Dec 19
December was a great month for equities, driven by bullish fundamentals and sentiment. The S&P500 ended the year up 31.5% in USD and the All Share closed up 12%. The JPMorgan Global Manufacturing PMI jumped into expansion for the first time in six months, driven by a supportive monetary policy. Looking into 2020, a recession looks unlikely. The US and China finally agreed to a phase-one deal and the UK’s Conservative Party achieved a majority victory, reducing the likelihood of a no-deal Brexit. China and India are expected to provide 55% of global GDP growth in 2020. Fiscal and monetary stimulus in both countries remains high and should support this growth. However, escalating tensions between the United States and Iran and a looming impeachment trial is keeping markets off-kilter.
The economy contracted by a shocking 0.6% in the third quarter, and Eskom reached a new low, implementing stage 6 load shedding and operating at a meagre 60% of capacity due to heavy rains, unplanned outages and possible sabotage, sending the economy and markets into a panic. Steps in the right direction are being taken, however, as Public Enterprises minister Pravin Gordhan announced that Eskom power stations are again drawing their fuel from nearby coal mines offering preferential prices – during the years of state capture, politically connected mines were preferred. The ANC also announced that they are in talks to introduce equity partners at SOEs, provided that government remains the majority shareholder. The government placed SAA under business rescue to allow a “radical restructuring” under which it will receive R4 billion. Inflation came in at a depressed 3.6%, its lowest rate since December 2010, still with no further rate cuts, driving SA real yields to amongst the highest in the world and constraining growth.
The SACCI business confidence index fell to 89.1 points in August, the lowest level since April 1985. The Chamber noted that the “current state of fiscal deficiencies, social injustices and unemployment necessitates an urgent adjustment”, and Moody’s noted that Eskom’s financial position remains a significant threat to economic growth and government debt levels. However, the agency acknowledged that progress would be slow, offering South Africa a temporary reprieve from a sovereign downgrade for the next 12 to 18 months.
The 2010s saw the longest expansion in US history, a decade without a recession. The S&P500 closed the decade near an all-time high despite US House Democrats delivering two articles of impeachment against President Trump, for abuse of power and obstruction of Congress. The process will now shift to a Senate trial, where he is expected to be acquitted by the Republican majority there. The Federal Reserve maintained the Federal funds target rate range at 1.50–1.75%, but the “dot plot” witnessed a downward revision to 2020 projections, with participants now expecting interest rates to remain steady. This, together with continued quantitative easing and slowing growth, has kept the US dollar weak. Chancellor Angela Merkel’s government suffered a defeat as her coalition partner, the Social Democrats, replaced vice chancellor Olaf Scholz with Norbert Walter- Borjans. Scholz expects the SPD to put forward a set of demands that includes abandoning Merkel’s balanced-budget stance to stimulate growth. At her inaugural ECB meeting as chair, Christine Lagarde reiterated that monetary policy would remain highly accommodative but noted that fiscal policy is the next tool that can be used. Sweden’s Riksbank became the first central bank to exit negative interest rates, the rates having been negative since 2014. The Conservatives won their largest majority since 1987 under Margaret Thatcher, which should allow for easy passage of the Brexit withdrawal agreement, with the UK set to leave the EU by the end of January. Focus will then move to EU trade negotiations, which currently have a 31 December 2020 deadline. This deadline is unlikely to be met, however, as the EU/Canada trade negotiations took eight years to complete. His 80-seat majority should give Prime Minister Boris Johnson ample room to seek transition-period extension. Japan announced a stimulus package amounting to 26 tn yen ($239 bn), including 13.2 tn yen in fiscal measures to boost real growth, of which 9.4 tn yen is new spending.
The CBRT cut rates by 200 bps at its 12 December meeting. The Bank of Russia cut its key rate by 25 basis points as inflation slowed. India’s budget deficit is expected to be at 7% in 2020 to boost growth.
China PMI data surprised on the upside. The official CFLP manufacturing PMI rose from 49.3 to 50.2 in November, taking the economy into expansionary territory for the first time in seven months. In December, the index continued to expand steadily, at 50.2.
The CNH fell below the 7 mark as President Donald Trump signed off on a phase-one trade deal with China, averting the 15 December introduction of US tariffs on $156 billion of consumer goods.The terms also cut existing tariffs by 50% on $360 bn worth of Chinese imports in exchange for a boost in purchases of US farm products and enhanced protection of intellectual property rights. The deal is expected to be signed on 15 January. China started 2020 with a 50-basis-point reserve-rate requirement cut, which further buoyed markets. China’s budget deficit is expected to stay at a high of 6.5% in 2020.
The Sygnia International Flexible Fund of Funds returned -0.2% for the quarter, outperforming its benchmark which returned -1.4%. The Fund benefitted from strong performance by the Fund’s active equity managers and an overweight exposure to emerging markets. During the quarter we took profits on the Fund’s overweight exposure to US equities, which reached fresh all-time highs in Q4 2019, and closed the Fund’s underweight exposure to European equities. Europe has serious structural problems, but fiscal support will help in 2020, and a global growth recovery will support their export-focused economies. The Fund remains true to its mandate of delivering strong long-term real returns with a focus on longer-term capital preservation.
Investments to be included in the portfolio will apart from assets in liquid form, consist of participatory interests and other forms of participation in portfolios of collective investments schemes registered in South Africa and other similar schemes operated in territories with a regulatory environment which is to the satisfaction of the manager and trustee of a sufficient standard to provide investor protection at least equivalent to that in South Africa and which is consistent with the portfolio's primary objective. The underlying portfolio will invest in financially sound equity securities, property shares and property related securities listed on exchanges, fixed interest instruments and assets in liquid form. To the extent that assets in the portfolio are exposed to exchange rate risk, the Manager may include listed and unlisted financial instruments for the exclusive purpose of hedging exchange rate risk subject to the conditions and limits stipulated by the Act. The manager shall have the maximum flexibility to vary assets between the various market and asset classes to reflect changing economic and market conditions.
In selecting securities for this portfolio, where possible, the manager shall seek to deliver long-term capital growth at an acceptable level of volatility.
The effective offshore exposure of the portfolio invested outside of the Republic of South Africa (including participatory interests in collective investment schemes, whether listed on an exchange or not, and other forms of participation in portfolios of collective investment schemes, financial instruments, and assets in liquid form) will always be above 80%.
The portfolio will not follow a specific theme and the manager will have the flexibility to take advantage of short-term, as well as long-term events and themes within securities markets. Overall the portfolio seeks to provide investors with maximum capital growth over the medium to long term at a reasonable level of monthly volatility relative to the international equity and fixed interest markets. To that effect the portfolio places an emphasis on active manager selection, sector allocation and tactical asset allocation.
As the portfolio is managed on a fund of funds basis the assets are split between participatory interests in collective investment schemes of different types, including but not limited to collective investment schemes in securities and foreign collective investment schemes and managers with complementary, but diverse, investment styles and approaches.