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April 2020 – Market Update

Market Update

In our last update on 14th April 2020, we provided an update on the recent movement of the Johannesburg Stock Exchange All-Share index. As a reminder, on the 23rd March, the JSE All Share Index (JSE ALSI) was down 33.64% since the start of the year. Over the last few weeks, the stock market has recovered +/- 50% of the losses and as of yesterday, the JSE ALSI was down -16.65% for the year. So there has been a steady but gradual improvement. Of course, we have no idea what is going to happen but no doubt the international markets and the JSE ALSI will remain volatile and uncertainty will abound.

The Johannesburg Stock Exchange All-Share index provides an indication of how the overall South African stock market is performing. However, this measurement does not provide an understanding of what is actually happening to investment portfolios since most portfolios are multi-asset portfolios; they typically invest in shares, property, bonds, and cash. Here is a random sample of the performance of some different multi-asset class funds [These figures have been calculated from 2nd January 2020 until 21st April 2020]

Multi-Asset Income Funds: The capital value of these funds has generally declined in value by 0-3%. However, the funds have continued to pay income of approximately 8%

  • Coronation Strategic Income Fund: -3.44%
  • Ninety One Diversified Income Fund: -0.52%
  • Prescient income provider Fund: -2.06%

Multi-Asset Low Equity Funds: The capital value of these funds has generally declined in value by 0-5%.

  • Allan Gray Stable Fund: -5.18%
  • Ninety One Cautious Managed Fund: + 1.79% (increase in value)
  • Nedgroup Investments Stable Fund: +3.12% (increase in value)

Multi-Asset High Equity Funds: The capital value of these funds has generally declined in value by 0-10%.

  • Allan Gray Balanced Fund: -8.96%
  • Foord Balanced Fund -3.96%
  • Ninety One Opportunity Fund: 2.17% (increase in value)

Offshore Funds

  • Allan Gray Orbis Global Equity Fund: +6.3% (increase in value)
  • Allan Gray Orbis Global Fund of Funds: +10.57% (increase in value)
  • Coronation Global Managed Feeder Fund: +14.21% (excellent return!)
  • Ninety One Global Strategic Managed Feeder Fund: +16.51% (excellent return!)

The Coronavirus pandemic and the global economic crisis have created an emotional roller coaster ride for all of us. It is a particularly challenging time for investors. It is critical that we do not allow ourselves to make decisions based on our emotions. With all the bad news, our emotions are naturally skewered towards pessimism.  This removes the balance and moderation in our decision making. The fund managers within your portfolios are making rational investment decisions. Let’s not make any irrational emotional decisions that will ultimately damage our portfolios!

Markets will probably remain volatile and uncertain for some time but this presents exciting investment opportunities. Those who remain invested will reap the long-term rewards!

“The time of maximum pessimism is the best time to buy.” 

Sir John Templeton, British investor, fund manager, and philanthropist. In 1999, Money Magazine named him “arguably the greatest global stock picker of the century.”

“Anyone who is not investing now is missing a tremendous investment opportunity”

Carlos Slim, Mexican business magnate, investor and philanthropist. From 2010 to 2013, Slim was ranked as the richest person in the world by the Forbes business magazine.

April 2020 – Where to next and Interest rate cut

What next?

Entering into week 3 of 5, it is becoming more evident with every day that the social and economic impact of the Covid-19 virus will be felt far longer by South Africans than the virus itself. In the attached newsletter, Chief Investment Officer of Coronation, Karl Leinberger, provides investors with an interesting insight into how the pandemic is likely to play out as well as offering up Coronation’s thoughts regarding the virus and their fund positioning going forward.

Market Update

On the 23rd March the JSE All Share Index (JSE ALSI) was down 33.64% since the start of the year. Over the last few weeks the stock market has recovered +/- 50% of the losses and the JSE ALSI is now -16.92% for the year. So there has been a steady but gradual improvement. Of course we have no idea of what is going to happen but it would seem that the markets will remain volatile.

At the moment we are all living the experience of the Coronavirus and being constantly bombarded by bad news! It is understandable, that at times like these, investors are feeling negative and despondent. We are currently living through an unprecedented time and it is impossible to know how the future will play out. One of the most important investment decisions is to remain rational rather than being guided by fear and the constant refrain of bad news!

We are encouraging investors to remain invested.

  • We have always advocated that buying high and selling low is an irrational strategy.
  • Do not rush into making sudden rash judgements!
  • Investors who sell at the sell levels are crystalizing losses.
  • “Only when you combine sound intellect with emotional discipline do you get rational behaviour” (Warren Buffet)
  • The fund managers within your portfolios are making rational investment decisions
  • The funds within our client portfolios are managed by excellent fund managers who constantly seek out outstanding investment opportunities and at the same time strive to limit the risk within investments.
  • The fund managers are attempting to create long term wealth and buying shares at levels that are some 30% cheaper than at the beginning of the year. This bode well for medium to long term success!

There is a significant quote from the article by Karl Leinberger, the Chief Investment Officer of Coronation Fund Managers:

“A long time horizon has been the cornerstone of Coronation’s success of many decades. Every crisis we have lived through (and the list is getting long!) has presented an outstanding opportunity for those investors prepared to take the long view. We currently find ourselves swimming in stunningly cheap assets! We have been astounded by some of the long-term opportunities that have been on offer in the last few weeks. The list of stocks, in both domestic and global markets, that our analysts believe offer more than 100% upside (to their underlying intrinsic value) is a long one.” 

Investors who stay invested will undoubtedly reap the long term benefits presented by the current opportunities.

It is at times like these that it is important to remember that although a decline may have been experienced, this is temporary. Although no one can accurately predict how the next few months will play out investors should not forget that their Fund Managers remain committed to delivering on their specified investment mandates. Whilst there may another decline in the value of the JSE All Share index, there will most certainly also be a recovery. The important point is for investors to remain invested to enjoy the benefits arising from the opportunities presented today.

Interest rate cut by 1%, current yields

This morning the South African Reserve Bank announced a further 1% decrease in interest rates. We have been in constant communication with some of the Fund Managers who manage our income portfolios for clients. Their guidance is that the funds will continue to provide investors with a yield in excess of 8%. This is a real return of 3% after inflation. The downgrading of South Africa to junk status forced foreign investors to sell their positions in South Africa, this has provided opportunities for Fund Managers to lock in returns for the next 18 – 24 months at very attractive rates.

We would like to remind everyone that we continue to work remotely from home and are available to help assist in any way we can. Stay safe and God bless!

March 2020 – Business as usual

Business as usual!

Never has the world experienced a global health crisis of this magnitude as the risks of Coronavirus (COVID 19) intensify across the United States, Europe and within our own country, South Africa. This is unprecedented in history and no one knows how this is all going to end up!

On Monday evening President Cyril Ramaphosa announced his decision to implement a nation-wide twenty-one-day lockdown from midnight on 26 March 2020 until midnight on 16 April 2020. South Africans will have to stay at home in an attempt to curb the spread of the Coronavirus.

Although our offices will close on 26th March 2020, we will all be working from our homes. It will be business as usual except we will not be able to have any face to face interactions. We can be contacted on the following contact numbers:

Please give us call us if we can assist you with anything.  We will do our best to provide the best service that we can. 

These are worrying times! We have never experienced a crisis of this magnitude and the disruption to our day to day lives, to society and the economy. We are being asked to make sacrifices in order to combat this virus and with it comes the anxiety of the isolation from family and friends. This disease can be defeated! We urge all South Africans to stay at home, keep safe and assist in combating this virus.

We pray that you will all stay healthy!

Kevin, Greg and Leonie

Healing God, bring healing to those who are sick with the Coronavirus and be with their families and neighbours. We pray especially for those who are isolated, that they may know your love. Stay by our side in this time of uncertainty and sorrow.