It has been a tough time in global markets of late and even more so for South African asset prices. Global turmoil and domestic headwinds have battered the rand, equities, and bonds. Yet despite SA’s weakest point being the fiscal position, the ALBI has actually outperformed the ALSI by almost 5% on a total return basis for the month-to-date. What is even more perverse is that part of the reason for pronounced equity market weakness is the tabling of the National Health Insurance (NHI) Bill, which may require more government borrowing, which should actually be very negative for the bond market.
Over the past week, many credible radio talk shows have interviewed experts and politicians – with lots of listener call-ins on the side – about what the adoption of the NHI bill will mean for South Africa. To be clear, most people agree with the principle of universal health coverage, as a healthy population means a healthy labour force, and a healthy labour force means more productivity. However, as usual, the devil is in the detail.
The ABCs of the NHI are complicated. By and large the key concerns are: it is entails the establishment of a government entity that is wide open to looting; that it relies on an ineffective and poorly staffed government health sector; that it will more than likely lead to the exodus of medical skills from the country; that it will take away the individual freedom of choice; and that it will require yet more private sector tax hikes.
Many studies have shown that, similar to education, the problem is not the quantum of money that is spent on health care, but rather the quality that we get in return. We all want “bang for our buck” and we know in investment parlance that we need to “sweat the assets”. Yet there is a major risk that the NHI will be a major drain on South Africa via more taxes, ineffective expenditure, looting, red tape, and emigration. This toxic combination could put the country in ICU.
The silver lining is that as US yields head towards zero, SA yields at 9.0%+ look attractive, meaning that for the time being the government will fund what it needs to, while the equity market is now screening cheap. Do not underestimate the value of value. Being nimble in the current fluid environment is just the right medicine to ensure out-performance.
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 5 if one compares it against all funds in the General Equity space (123 funds) since inception with annualised performance of 7.2% achieving Swix +1.85% 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 performed in line with the ALBI. 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 21 months.
- Matrix NCIS Fixed Income Retail Hedge Fund has returned 15.8% 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.
If you would like further information please feel free to contact us.