May 2018

The first three months of 2018 proved to be a challenging period in terms of the various NFMW portfolio returns with the recorded returns, undoubtedly, not what most investors would have expected after the recent (positive) sentiment change when Cyril Ramaphosa was elected as the ANC's and South Africa's president.

Foreigners regained confidence in the economic revival theme and the All Share Index was nicely up by 3.6% up to the 28th of January. But these returns were short-lived as the infamous Viceroy Research Group released a report on Capitec that suggested, among other things, that the bank's policy of restructuring bad debts was inappropriate. This news, along with rumours that the same group was preparing a report on a South African property counter, wiped out the month's gains in just three trading days and the All Share Index ended January up by only 0.1%.

Meanwhile the rand continued to strengthen on foreign flows with the local currency gaining a further 4% against the dollar, which had a negative impact on offshore investment. Towards the end of February, the announcement of a 1% VAT hike was seen by most market participants as the only sure-fire way to increase the government's revenue and thereby avert a further downgrade from rating agencies. February saw the rand close at R11.80 at month end as speculation on land expropriation without compensation loomed.

The South African consumer received good news as a low inflation rate of 4% paved the way for the SARB to cut interest rates by 0.25% at its March meeting. The announcement was met with some relief and will hopefully offset some of the cost increases related to the higher VAT-rate.

South Africa is not isolated from global economic events and fortunes, given the global economic backdrop of US/Chinese trade wars, rising interest rates in the US and a global sell-off in technology stocks which impacted portfolio returns.

Local markets followed global markets with losses exacerbated by an 11.6% fall in the Naspers share price as global technology stocks were sold off. In March the All Share Index followed global markets lower (and lost 4.2%). It recovered in April and posted a 5.4% return for the month resulting in an annual return of 11.4%.

Fortunately, from a return perspective, the SA equity market has recovered in April and the rand has weakened back to R12.46 to the dollar, which resulted in excellent returns for the NFMW Life Stage portfolios (Stable Growth, Capital Growth and Aggressive Growth portfolios). As a result, the fund recovered most of the losses recorded between January up to the end of March 2018.

We expect volatility to return to the market and with the current market valuation on the high side (especially in the developed markets), we would caution against too much optimism. The market volatility makes it crucial to remain invested in well-diversified portfolios that have exposure to various asset classes and investment themes and are committed to investing for the long term.

The latest investment portfolio returns are provided below.

Kind regards
Sean Samons
Principal Executive Officer