Eskom and load shedding are again front and centre with South Africa suffering bouts of no electricity ranging from Level 2 to Level 4 when you could be left in the dark for two periods of 2½ hours a day. This comes at a time when Eskom is desperately in need of cash and losing more operating income through not providing electricity. We all know that the load shedding of 2008 contributed to the cyclical downswing, while the outages of 2015 entrenched the decline in potential growth of the economy.
While businesses are more prepared this time round with generators kicking in mere minutes after power failures start, rolling brownouts are not good for morale (business and consumer confidence), nor for investor confidence. Anecdotally, I was in two shops that lost sales due to credit card machines not working as a result of the power cuts.
Eskom has been in the spotlight prior to the recent load shedding. Financial woes arising from over spending (read corruption) at the major power plants, Kusile and Medupi, and a bloated work force over the recent years have ensured that Eskom made headlines throughout 2018. Plans have been put forward by special task forces regarding restructuring of Eskom, as highlighted by President Ramaphosa in his State of the Nation Address (SONA) two weeks ago. The potential restructuring and eventual privatisation of Eskom are some of the options open to government but these have not gone down well with labour unions. An election year will always be a challenge to reform. One has to wonder why load shedding started up again so quickly after the SONA speech. Is this labour flexing its muscles?
The country is on a knife’s edge with investment sentiment turning sour due to the Eskom issues. The rand weakened by 8% last week and bond yields jumped by 50bp, both wiping out the January gains. This could be in anticipation of what would happen to the sovereign credit rating if the government does the wrong thing. Some of the options in the looming budget are the government taking on Eskom debt – a number of R100 billion has been touted – or an outright equity injection. This could be the final nail in the coffin for Moody’s to lower South Africa’s rating. If this were to happen then we expect further rand and bond market pressures due to SA exiting the FTSE World Government Bond Index (WGBI). Let’s hope Minister Mboweni can find some light at the end of this tunnel.
Headline Information of the Matrix Funds
LONG FUNDS: (Inception date 1 June 2014)
- Matrix NCIS Equity Fund has SWIX TR as a benchmark and continues to do well against peers as well as the benchmark index. The fund ranks number 3 if one compares it against all funds in the General Equity space (123 funds) since inception with annualised performance of 7.2% achieving Swix +2% over this period.
- Sanlam Select Defensive Balanced Fund achieved a return of CPI+3.6% since inception exceeding investment objectives (CPI+3%). The fund is ranked number 1 out of 91 funds since its inception with annualised performance of 8.4%.
- Sanlam Select Bond Plus Fund has outperformed the ALBI since inception by 0.2% per annum. The fund is ranked number 7 out of a universe of 27 funds over the same period with annualised performance of 8.6% since inception.
- Sanlam Select Absolute Fund has a very short track record under management of Matrix Fund Managers. We took over the management of this fund in October 2017. The supplemental deed of the fund is being changed to the Medium Equity category. Comparing the short track record against peers shows a promising start. If you were to look in Morningstar, for example, the fund has a longer track record but we are only responsible for the last 15 months.
HEDGE FUNDS:
- Matrix NCIS Fixed Income Retail Hedge Fund has returned 15.9% since inception. The fund achieved annualised returns of performance of 11% over the last 3 years outperforming Equities with no correlation.
- Matrix NCIS Multi Strategy Retail Hedge Fund has returned 11.7% since inception. Over time the fund has no correlation to the equity market, low correlation to bonds, and performs well against both asset classes since inception.
If you would like further information please feel free to contact us.
