NAV on 2019/07/23
|NAV on 2019/07/22
|52 week high on 2018/09/04
|52 week low on 2019/01/04
|Total Expense Ratio on 2019/03/31
|Total Expense Ratio (performance fee) on 2019/03/31
Sygnia Collective Investments RF (Pty) Ltd
CPI + 5% pa, gross of fees
Willem van der Merwe
Willem is the Joint Head of Investments and one of the founding members of Sygnia Asset Management. Prior to joining Sygnia in 2003 he was Head of Quantitative Management at Coronation Fund Managers for six years. At Coronation he developed a proprietary risk management framework for the internally managed hedge fund product, and designed and implemented the quantitative and qualitative analysis processes and software for their international fund of hedge funds operation.
Sygnia Asset Management (Pty) Ltd.
Sygnia Skeleton Worldwide Flexible Cmmnt - Mar 19
Markets were driven higher over the first quarter thanks to improved support from central banks and governments despite the downward trajectory of economic growth. China has surprised to the upside with fiscal stimulus, while the Fed has stopped raising interest rates, reduced quantitative tightening and shifted its monetary policy towards an average inflation target. The ECB announced another round of quantitative easing, and emerging-market central banks are able to accommodate lower interest rates due to stronger currencies. The recovery in risky assets year-to-date reflects expectations of economic green shoots in the second half of the year thanks to this additional liquidity; however, bond markets are disagreeing with this view and are extrapolating current disappointing growth to the second half of the year. The US yield curve inverted, suggesting a recession is imminent, while the German 10- year Bund yield went negative for the first time in three years. Meanwhile, emerging market currencies are pricing another crisis, following the Turkish Lira's plunge.
Real gross fixed capital formation contracted for the fourth consecutive quarter in 2018 across all sectors which bodes poorly for future growth. The RMB/BER business confidence index (BCI) plunged to levels last seen during 2009's global recession. Confidence was further weakened as President Ramaphosa confirmed that the ANC will nationalise the South African Reserve Bank. Meanwhile, NERSA's tariff increases, the lack of tax relief in the budget, higher oil prices, and renewed stage four load shedding have all contributed to low consumer confidence. CPI remained lacklustre at 4.1% in March and the SARB kept rates on hold. Despite the higher tariffs, Eskom's liquidity position remains dire and it is the biggest risk to SA's economic growth and credit rating, although Moody's kept South Africa's rating outlook unchanged at stable. On the stock front, Aspen fell over 50% intraday after disappointing results with spiralling debt the main concern.
The Fed delivered a significantly more dovish outcome at its March meeting than expected, with the committee downgrading growth and inflation projections in line with recent data. US employment showed only slight growth, manufacturing slowed more than expected and consumer confidence dropped well below expectations. US consumer prices experienced the smallest increase in nearly two-and-ahalf years. As a result, the Fed effectively called an end to its hiking cycle with no hikes forecast this year. In addition, the committee announced that quantitative tightening will be lowered in May before being halted completely in October, effectively ending US quantitative tightening. The Fed is also willing to tolerate an overshoot of their inflation goal. However, despite this, the gap between the three-month treasury bill rate and the benchmark 10-year yield inverted for the first time since 2007. An inversion of that portion of the yield curve is seen as a reliable warning of a potential recession within the next year or two. The US trade deficit reached a 10-year high in 2018 on record imports from China, which continues to highlight the risks of the trade talks which are set to continue into April.
March's Eurozone manufacturing index fell to a near six-year low and investor confidence remained negative for the fourth consecutive month. The ECB downgraded growth and inflation forecasts and in recognition of the poor outlook, announced dovish policy changes. Rates are now expected to stay unchanged throughout 2019 and a third series of quarterly targeted longer-term refinancing operations (TLTRO-III) will be implemented.
Theresa May put forward a stripped-down version of her twice-defeated Brexit divorce deal to a vote in parliament, however, lawmakers rejected May's Brexit deal for a third time. May had announced she would resign if her deal went through. As a result, the EU's extension of the Article 50 period will only run until 12th April. Britain now needs to convince the EU it has an alternative path or exit without a deal, and the UK parliament's indicative votes process is set to start on the 1st of April.
The composite PMI rose to 53.8 indicating acceleration in activity. However, geopolitics remains a concern as tensions increased between India and Pakistan over the disputed Kashmir region, after an Indian MiG-21 fighter jet crashed near Pakistan. The pilot, who had safely ejected before the crash, was later paraded on Pakistani television. India heads for national elections in April.
Turkey entered its first recession in a decade at the end of last year and the Turkish central bank's net reserves slid $6.3 billion in the first two weeks of March to $28.5 billion, raising speculation that it was intervening to support the currency. As a result, the Lira sold off and the cost to borrow liras overnight rose above 1000% as Turkey's government attempted to support the currency. The Turkish lira fell after President Erdogan's ruling party lost control of key cities during the local elections on the 31st of March.
Core Machine Orders fell -5.4%, far below expectations, while output at Japanese manufacturers fell at the fastest pace in almost three years. The Bank of Japan held its monetary policy steady and predicted the economy is likely to continue its current moderate expansion.
China's industrial production grew at the slowest pace in nearly two decades in the first two months of the year and China's exports tumbled 20%, the biggest fall in three years. China lowered its official goal for economic growth in 2019 to a range of 6 - 6.5%, however, it announced several growth supportive measures, including US$298.31 billion in tax cuts. In addition, China said it will invest 800 billion yuan in railway construction and 1.8 trillion yuan to build roads and waterway projects. Fiscal policy is increasing steadily, including local bonds to the general public deficit, the total is a massive 6.5% of GDP. Initial March data indicates domestic demand is improving on the back of policy support.
Oil prices hit their highest levels of 2019 after OPEC committed itself to further output cuts and sanctions on Venezuela and Iran reduced supply.
The Sygnia Skeleton Worldwide Flexible Fund returned 7.2% for the quarter compared to its long-term target, CPI + 5% per annum, which was 1.7%. Outperformance was driven by strong market conditions, with domestic equity markets up 6% and global equity markets up 12%. The Fund’s offshore positioning also contributed to performance.
The fourth quarter of 2018 began with an underweight exposure to emerging markets in our global equity building block. This position worked tremendously well for the funds, but given a number of positive catalysts, we decided to close this position and bank the profits in Q4. The first quarter of 2019 favoured emerging markets. The Fed not only announced patience on further rate hikes, but also discussed an end to quantitative tightening much sooner than expected. Together with aggressive fiscal stimulus from China, this allowed us to take emerging markets to overweight and reduce the US to neutral. Other changes included taking profit on our offshore equity position and our US bond position.
These positions were taken in line with the Fund’s investment objective of providing superior longterm returns while protecting capital over the medium to long term.
The Sygnia Skeleton Worldwide Flexible Fund is a Worldwide-Multi Asset Flexible portfolio and shall comprise investments in multiple asset classes as set out below, both in South Africa and internationally. The portfolio represents Sygnia's best investment view at any time on the optimal combination of different asset classes required to achieve superior long-term returns at a reasonable level of risk. The portfolio exploits the benefits of diversification and will change its exposure to different asset classes on an active basis, based on prevailing market conditions.
The unconstrained nature of the mandate should ensure that risk of capital loss can be managed in an effective manner over both the medium and the long term via active asset allocation strategies.
The portfolio shall consist of financially sound equity securities, property shares and property related securities listed on exchanges, fixed interest instruments and assets in liquid form. The portfolio may also invest in listed and unlisted financial instruments, including derivatives, in accordance with the provisions of the Collective Investment Schemes Control Act and applicable legislation, as amended from time to time, in order to achieve the portfolio's investment objective. The Manager may also include unlisted forward currency, interest rate, index and exchange rate swap transactions for efficient portfolio management. In selecting securities for the portfolio, where possible, the manager shall seek to sustain long-term capital growth.
The portfolio may also invest in participatory interests and other forms of participation in portfolios of collective investment 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.