TRANSCRIPT

Hi everyone and welcome to the DFM monthly updates. 

Starting with the market, the January inflation print in the US of 6.4% was higher than they expected 6.2%. The Fed turned more hawkish, and market participants started pricing in higher interest rate hikes in the next coming meetings. In South Africa, being greylisted by the Financial Action Task Force as well as the ongoing load shedding problems, proved to be a challenge for domestic assets. On the back of this, SA equity sold off 2.3% SA property shares was flat, 0.1% and SA Bonds fell 0.9%. 

Global assets produced positive returns in Rand terms, but if one takes a closer look at those returns, you would see that it was really the selloff in the Rand that gave you the returns. In U.S. dollar terms, global assets also produce negative returns.

Short performance overview

Looking at our solutions, most of the model portfolios produced muted performance in the month of February. In relative terms, they performed largely in line with the benchmarks, which is peers in this case. 

And when we look at the solution that really stood out in the month, it was the Flexible Growth Solution. The exposure to offshore assets sitting at above 66% and contributed the most to the positive 1.7% return. The BCI Equity Feeder Fund did very well again, with growth continuing to outperform value in 2023. Looking at the other solutions –

In Flexible Income, Amplify Strategic Income Fund stood out, with bonds maturing in less than three years, sitting at 40%. They benefited from their relative short duration and again, higher exposure to offshore assets  contributed to its performance. Bateleur Flexible also made a big contribution. It was its stock selection decisions in the SA equity components that helped returns, with the likes of BTI and Bidcorp being some of the shares that performed  well in February. The fund also had high exposure to global equities. 

We had two funds that lagged in the month. Those being the Prescient Income Provider Fund as well as the Laurium Flexible Fund. In the case of Prescient, it was their exposure to fixed rate bonds as well as relatively low allocation to offshore assets. In Laurium’s case, it was their preference for higher equities in a month where equities sold off, that impacted their performance. 

Outlook

In terms of the outlook, expectations that the US Fed will pivot sometime this year are slowly dissipating. The strong jobs data from the US has kept inflation high to a point where market participants are now starting to talk about a 50-basis point hike in the next Fed meeting. However, not all is lost. The blanket selloff of companies has made the environment quite opportune for active management. When you look at the M&A activity in the last couple of years, it does also point to an environment where assets are cheaply priced. We have stock pickers in the funds that are really capable of taking advantage of these stock picking opportunities that are being presented by the market and we believe that the models tend to benefit more from having exposure to those good stock pickers. 

We thank you for your continued support and look forward to engaging with you again in the next month. Thank you.