Transcript 

Hello everyone. My name is Carl Chetty, portfolio manager at INN8 Invest.  

Welcome to our monthly DFM update where I’ll take you through the key drivers of market and portfolio performance for the month of March 2023.  

It was an eventful month that was dominated by the news of the failure of mid-sized U.S. banks, Silicon Valley Bank, or SVB, and Signature Bank. And shortly thereafter, the failure of Credit Suisse, which is headquartered in Switzerland. These failures were primarily driven by significant losses in the market value of the bank’s long-term bond holdings, which were hurt by rising bond yields over the last year. The impact of these bank failures was, however, contained as the US fed intervened by injecting liquidity into the banking system to prevent any contagion to other banks.  

Despite all the negative sentiment resulting from the many banking crises, global equity still managed to deliver a positive U.S. dollar return of 3% in the month. This was mainly due to strong performance from mega cap US tech stocks such as Amazon, Apple, Alphabet, Microsoft, and Meta, which all delivered double digit returns.  

Rather perversely, these banking failures caused markets to expect the Fed to soon start cutting interest rates, thereby boosting the valuations of long duration assets such as tech stocks. As a result, global bonds also ended the month in positive territory with a U.S. dollar return of 3.5%.  

On the local front, the JSE was among a small number of equity markets that ended the month in negative territory, with the capped SWIX index falling almost 2%. This was largely due to declines in the prices of SA banking stocks.  

Local economic data released in March was also generally worse than expected as South African inflation came in ahead of expectations at 7%. The South African Reserve Bank hiked rates by an unexpected 50 basis points. Bonds produced a positive return – more than 1% – as they benefited from falling global bond yields in the month. The rate hike also helped the Rand to strengthen by more than 3% in the month.  

Short performance overview 

Looking now at the performance of your portfolios in March, all five portfolios delivered returns that were generally in line with peers. The income portfolio marginally outperformed, while the four multi asset portfolios marginally underperformed. However, over the last year, all five portfolios are comfortably ahead of their peer benchmarks.  

Taking a look now at some of the key manager contributors and detractors in the month. Prescient Income Provider, which we use in the Flexible Income Portfolio, delivered a very strong return of more than 1% mostly on the back of its position in Global Fixed Income but hedged back to rands so that its performance was not negatively impacted by the stronger rand. NinetyOne Cautious Manager also had a good month on the back of its large underweight exposure to local equities and its overweight exposure to global equity. The two key detractors in the month were Truffle Flexible Fund and Laurium Flexible Fund, which were both hurt by large overweight positions in South African equities. Truffle was further hurt by its overweight position in Investec Bank, which was one of the worst performing JC listed shares in the month.  

Outlook 

Looking ahead to the rest of the year, although global markets have delivered fairly strong returns year to date, there are still significant risks at play. In particular, markets will take their cue from central banks, which are juggling between the somewhat competing. Priorities of raising interest rates to combat inflation while at the same time preventing a deep recession and ensuring ongoing financial stability, a very tricky balancing act. So, we expect high levels of volatility to persist for the rest of the year. This is likely to provide excellent long-term opportunities for fund managers. Many assets will trade at depressed levels relative to their long-term value.  

So rather than trying to time the market, we urge investors to stay invested, but to also ensure that your portfolios are sufficiently diversified across asset classes, sectors, current countries, currencies, investment styles and managers.  

Thanks for tuning in to our monthly DFM update. We thank you for your ongoing support of the DFM solutions and we look forward to engaging with you more in the months ahead. Take care.