The year 2017 started with world leaders decisively executing on voters’ wishes. And on the European continent there are signs of economic recovery, even if it’s happening slowly. Locally, inflation has accelerated further and political tension is mounting. But despite this, the major market indices are all up.
‘We live in a world with very low interest rates, which are likely to cause very low returns from global bonds and which have changed the pricing levels on all alternative asset classes,’ says Frederick White. It is also a highly indebted world. How did we get here? And going forward, how do we attain the best of both worlds: long-term growth together with short-term protection against downside risk? Fred White, the co-manager of the Sanlam Investment Management (SIM) Balanced Fund, shares how the fund is positioned to provide investors with yield in a risk-off environment.
Investment Strategy gives investors a QUARTERLY overview of key developments in the economic and financial markets, as well as insight into a topical trend or event.
After the 21st Raging Bull Awards ceremony held in Johannesburg last night, several portfolio managers brought home awards for being first in their category. The prestigious Raging Bull Awards ceremony recognises the top managers in the South African unit trust industry, measured on their long-term performance. The winners were the SIM Enhanced Yield Fund, the SIM Small Cap Fund and the SIIP India Opportunities Fund.
Locally, the most anticipated event for December, was the potential downgrade of SA debt by ratings agency Standard and Poor’s (S&P). In the end, S&P kept the foreign currency debt rating at one notch above sub-investment grade, but downgraded the local currency debt to BBB, still two notches above junk.
We have summarised the main events that moved the markets – locally and globally – through-out the year 2016.
The US Federal Reserve’s decision to hike the federal funds target rate from 0.25-0.50% to 0.50-0.75% on Wednesday can hardly be described as a surprise. Already after the US presidential election results, amid a sell-off in US Treasuries, markets were pricing in a near-certain increase in the US Federal Reserve’s federal funds target rate by early December. Still, this interest rate hike is only the second of this decade and occurred much later than participants of the US Federal Open Market Committee (FOMC) expected two years ago. In December 2014, most members of the FOMC thought the federal funds target rate would be 2% or higher at end 2016.
2016 was a tumultuous year in many respects, with the asset management industry facing a number of headwinds due to increased geopolitical uncertainty and unpredictable shock events.
November will be remembered for its political surprises, some pleasant and some unsettling – depending on your political stance. In the first week of the month Wall Street and Asian markets trembled in anticipation of a potential Trump victory. Once it became official, bond investors sold off billions of dollars of bonds. In fact, the Bloomberg Barclays Global Aggregate Total Return Index lost 4% in November, the biggest retreat since the start of the index.
On Friday Fitch changed its outlook attached to the BBB- ratings of SA foreign and local currency debt to negative, and warned that continued political instability could lead to the sovereign’s downgrade. It expects the political risks facing the country to remain high at least until the ANC’s leadership election in December 2017. Moody’s kept the sovereign rating unchanged at Baa2, two levels above subinvestment grade, with a negative outlook. And this coming Friday Standard & Poor’s releases its long-awaited report on the quality of South African debt. Frederick White and Mokgatla Madisha from Sanlam Investment Management believe that a downgrade is largely expected by the market and that the news is creating attractive investment opportunities.