Satrix Low Equity 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
The Capped SWIX realised a positive return of 2.9%, behind that of the ALSI, which was one of the best performing general equity indices for the second quarter of 2019, up 3.9%. Both these indices are now in positive territory over the last 12 months. Year to date the Capped SWIX ended up in double-digit returns. The Capped SWIX and the SWIX performed in line with one another during the last three months.
The difference in return between these two indices could be explained by the relative underweight exposures to BHP (BHP), Richemont (CFR) and Anglo American plc (AGL) in the Capped SWIX, which all had strong share price performances over the quarter. Relative overweight positions in counters such as the poor performing Sasol (SOL) and British American Tobacco (BTI) further detracted from performance. The relative overweight position in MTN and most of the bank shares negated some of the underperformance.
The equity portfolio underperformed its benchmark by about 10 basis points. The difference in your return was mainly due to our optimised model portfolio underperforming the SWIX. This happened in April when some small cap shares, in which we had no exposure, such as EOH, Ocean and Storage, all performed well. Trading costs, due to cash flows and rebalance trades, also influenced performance. Our optimised portfolio holds between 135 and 140 shares out of a possible 160- plus shares at an ex-ante active risk of between 7 and 10 basis points.
During the June 2019 FTSE/JSE index review there were no constituent changes implemented on the index. Weight changes happened on Naspers, BHP and Anglo American. The one-way turnover was just more than 1.4%.
The manager shall seek to achieve the objective by investing in a combination of equities, bonds, inflation linked bonds, assets in liquid form from (including money market instruments), listed property and international equities, fixed interest and listed property.
The investment manager will also be allowed to invest in derivatives as allowed by the Act from time to time in order to achieve its objective, as well as in participatory interests in collective investment schemes registered in the Republic of South Africa or of participatory interests in collective investment schemes or other similar schemes operated in territories with a regulatory environment whic is to the satisfaction of the manager and the trustee of a sufficient standard to provide for investor protection which is at least equivalent to that in South Africa. This combination of investments will enable the investment manager to track the performance of the Satrix Low Equity Balanced Index as closely as possible. When nivesting in derivatives, the manager will adhere to prevailing derivative regualtions.
The trustee shall ensure that the investment policy set out in the preceding clauses are adhered to, provided that nothing contained in this clauses shall preclude the Manager from varying the proportions of securities in terms of changing economic factors or market conditions or from retaining cash in the portfolio and/or placing cash on deposit.