The adage that ‘forecasting is difficult, especially if it is about the future’ can be adapted to explain historical market movements – it is sometimes just as difficult to elucidate why financial markets reacted to news flow in a given way. To be sure, many financial pundits and talking heads have been forced to fit the narrative retrospectively to try to make sense of changing asset price correlations. Over the last year or two it has become the norm to create this narrative around Trump, Trade wars, Twitter, Brexit and the ongoing UK political sagas, Recession fears and yield curve inversion, and the new age of negative interest rates.
Since the weekend we can add another narrative to our commentary quiver, that being geopolitical tension in the Middle East. The attacks on the Saudi oil fields have reduced global oil production by 5%, triggering a sharp reaction in the oil price – Brent crude jumped by 17% to over US$70/bbl on this morning’s open, but has moderated to US$65/bbl at the time of writing. Against a backdrop of moderating global growth and fears of a potential recession in the US this could be another catalyst for emerging market under-performance. While oil exporters will benefit, the net impact on growth will be negative as oil importers pay more for oil and as consumers are left with lower income available for discretionary spend after higher transport costs.
Up to now emerging markets, including South African asset prices, have benefited from the tailwind of global central bank stimulus. The rand has appreciated by 4.5% over the past month, with USD/ZAR closing at 14.55 on Friday; local bonds seemed to have found some level of support with SA real yields above 4.0% being much higher than those in developed markets; even the stock market has had a decent bounce (up 6.4% since mid-August).
The big question for this week is whether the SARB will follow the Fed in cutting rates to support the ailing South African economy. The money market (FRAs) is pricing in a further two 25bp cuts over the coming 12 months. Given contained inflation this would easily be justified, but recent shocks to the oil price, a moderately weaker rand and attendant upside inflation risk, the crucial MTBPS in October, and the pending rating reviews in November might just be enough to keep the SARB on the side-lines on Thursday.
Headline Information of the Matrix Funds
- 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 4 if one compares it against all funds in the General Equity space (123 funds) since inception with annualised performance of 6.65% achieving Swix +2% over this period.
- Sanlam Select Defensive Balanced Fund achieved a return of CPI+3% since inception meeting it’s investment objective. The fund is ranked number 2 out of 91 funds since its inception with annualised performance of 8.0%.
- Sanlam Select Bond Plus Fund has out-performed the ALBI since inception. The fund is ranked number 6 out of a universe of 28 funds over the same period with annualised performance of 8.76% 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 22 months.
- Matrix NCIS Fixed Income Retail Hedge Fund has returned 15.6% 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 11.8% 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.
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