We live in interesting times
Introduction from Natalie Phillips
Head of SA Institutional
Welcome to the first issue of Investec Asset Management’s Institutional Insights. We are excited to launch this bi-annual newsletter, which provides a platform for reflecting on markets and sharing our investment and industry insights with you.
Central bank action continued to dominate proceedings in the first half of the year, with interest rate cuts seen across the globe. The number of rate cuts – especially over the first quarter of 2015 – was truly extraordinary compared to historical precedent. Perhaps more remarkable is the fact that the likes of Switzerland, Denmark and the euro zone all ended the quarter with negative deposit rates, making it challenging to assess the long-term consequences. Central bank communication was also an important consideration in the US, as market participants searched for clues on the intentions of the Fed. It is our view that interest rates will rise in the US this year for the first time in eight years, and as a result we believe it is unlikely that the equity market will surprise on the upside.
In this issue of Institutional Insights, Nazmeera Moola, our Economist and Strategist, shares her views on the current state of the global economy. She argues that we are at a critical juncture, with concerns ranging from Greece to China. However, Nazmeera explains why in her view a bullish story for global growth is possible over the next few years.
Moving closer to home, South Africa has not been unaffected by weaker global markets, resulting in weaker commodity prices. Concerns around Europe have also led to a volatile local equity and bond market. The All Share Index remains a highly divided market, dominated by a handful of large capitalisation, highly valued industrial stocks. The local economy remains under pressure and the issues surrounding Eskom have not helped the macro environment, with risks relating to our state-owned power utility being progressively heightened. We believe, however, it is imperative to remain focused on the long term and not let the short-term headwinds of the past few months detract from our ultimate investment objectives. We adopt this mindset to ensure our clients’ assets are managed in such a way that members are able to retire with dignity. Investec Balanced, one of our flagship strategies, has since inception delivered returns in excess of 10% per annum ahead of inflation.¹
Overall, the team has a slightly more cautious positioning than in the past. In this edition, the Investec Balanced and General Equity teams have put together an insightful case study on Steinhoff, which underlines the power of earnings revisions – the cornerstone of the equity component of Investec Balanced as well as Investec General Equity.
African markets continue to be in the spotlight, particularly given the fallout from the oil price collapse of late last year. Portfolio Manager, Khaya Gobodo, provides a valuable perspective on managing risk when investing in the rest of Africa.
While there has been much focus on market-relative returns over the past few years, we believe that the recent negative returns experienced in some months during the first half of the year (three negative months by the All Share Index and five negative months by the All Bond Index) are a wake-up call. We need to remain cognisant of the importance of absolute returns and not assume that market indices will continue their positive trajectory inevitably. Portfolio Manager, Sumesh Chetty, explains why absolute returns still matter.
The SA listed property sector has been the star asset class performer over the past five years, delivering annualised returns of 20.5% and continuing to outperform all other traditional SA asset classes for the first six months of 2015. Portfolio Manager, Neil Stuart-Findlay, provides an interesting global perspective on why South African real estate has increased in prominence.
In conclusion, we are pleased to share some good news with you: Investec Asset Management recently received the top accolade at the Imbasa Yegolide Awards for Institutional Excellence by being named Overall Asset Manager of the Year. We thank you for your loyalty and support.
Enjoy the read!
1 Source: Investec Asset Management, as at 30 June 2015. Returns are calculated on a true daily time-weighted basis gross of fees.