We’re halfway through the year, and there are few signs that the geopolitical volatility that has characterised the past three years will abate any time soon. The same headlines continue to spell uncertainty for the markets — Trump, trade wars and Brexit. Even so, equity markets worldwide enjoyed a strong quarter and first half to the year.
In South Africa, the JSE All-Share Index climbed 3.92% in the second quarter and 12.21% for the first half of the year, but this belies the disparity seen across different sectors and stocks, as illustrated in the chart below. Resource stocks rose 10.28% in June and 19.2% for the year-to-date. Rand-hedged shares like Naspers, BHP, Richemont, and MTN also performed well. But mid and small-cap shares have remained under pressure, while stalwarts such as Vodacom, Shoprite, Discovery, and Nedbank all delivered negative returns for the year-to-date.
Dynasty’s domestic Funds have yielded both strong and competitive returns with inherent risk mitigation strategies
Dynasty’s domestic funds performed in line with their benchmarks for the second quarter and the year-to-date. Our two domestic funds outperformed most of their peers, ranking within the top ten per cent of funds in their respective sectors in the Morningstar rankings over the last year. We have achieved compelling returns in 2019 despite a slightly stronger rand and the risk mitigation strategies we have put in place to preserve the value of our clients’ funds.
In May 2019, we implemented a currency hedge on our offshore exposure to protect our domestic investors against a stronger rand. This benefitted our funds due to a strengthening of the rand in June. Recognising that difficult economic conditions that are taking their toll on mid- and small-cap JSE shares, we had already all-but eliminated our exposure to this sector in 2018. Those shares have dramatically underperformed since then.
We have focused on the All Share Index rather than trying to pick sectoral winners, which meant that our funds benefitted from the strong performance of resource shares during the quarter, relative to many actively managed funds that appeared to be underweight in this sector.
We also removed our exposure to long-dated bonds at the beginning of the quarter: Our research shows that these long duration instruments s have not added value on a risk-adjusted basis over time versus short duration fixed income funds. Furthermore, we remain deeply concerned about South Africa’s long-term economic metrics and the state of government finances.
Dynasty-selected offshore funds on an upwards trajectory
Pleasingly the overall trajectory of offshore markets has been upwards for the quarter and the year-to-date, despite a bumpy ride. The MSCI All Country World Index is up 3.8% for the quarter and 16.6% year-to-date, while the S&P500 is up 4.3% for the quarter and 18.5% for the year-to-date.
Dynasty’s offshore funds have outperformed their benchmarks and peers for this period. In line with our investment strategy, we continue to steer away from regional, cyclical and thematic stocks. This has enabled us to maintain our strong – and consistent – performance in a volatile environment.
Launch of Dynasty Offshore Funds
After a lengthy registration process, we are pleased to announce the launch of our new offshore funds, domiciled in Ireland and managed by our offshore affiliate, Dynasty Investment Management International. These funds follow the same investment philosophy and portfolio construction methodology that we have successfully applied in our South African Funds and similarly are housed in a tax-efficient structure. All clients will have the option of migrating their current offshore investments into these funds, (or a combination thereof), to suit individual requirements. We will be in contact soon to work through your various options in detail with you in the near future.
The above research has been exclusively compiled for Dynasty clients. The content is proprietary and cannot be reproduced without the written consent of Dynasty Asset Management (Pty) Ltd.