Satrix Capped ALSI 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 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 the 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%.
In South Africa weak economic data dominated the post-election headlines with first-quarter 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.
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. The FTSE/JSE All Bond Index (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%.
Portfolio performance and changes
The FTSE/JSE Capped Shareholder Weighted All Share Index (Capped SWIX) realised a positive return of 2.9%, behind that of the FTSE/JSE All Share Index (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 months. 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.
Your 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%.
Despite a poor economic backdrop and populist rhetoric, the JSE posted solid returns after a poor 2018. Patient investors will know that the best investments are made when sentiment is bearish. The JSE is trading on a forward P/E of 12.5x and an attractive forward dividend yield of around 4%.
The fund tracks the FTSE/JSE Capped SWIX All Share index, a broad market index including 99% of the full market cap of eligible JSE listed companies. The constituents are weighted by applying a SWIX free float which represents the proportion of a constituent's share capital on the South African share register. In addition each constituent weight is capped at 10% at each quarterly review. The fund tracks the index using optimisation techniques.