International

The US market broke through into all-time high ground as the benefits of the fiscal-driven tax cuts continued to boost corporate profits and consumer demand. These tax give-aways were imprudent to say the least. There have been few (if any) instances where a developed country has sought to stimulate its economy during a period of strong economic growth. Especially with unemployment at two-decade lows, debt levels well above those prevailing before the global financial crisis, and having to fund the largesse by doubling its fiscal deficit. There will be a price to pay for this politically-motivated folly.

Already, inflation is bubbling up after 10 years of benign calm. Wage inflation has soared to 3% - the fastest rate of growth in nine years - entrenching the MPC's resolve to continue hiking towards its 'neutral rate'. This is also necessary as the Fed is currently seriously underequipped to meet the challenges of the next downturn in the economy.

Rising interest rates are generally considered a major headwind for equities. However, when this will impact is always difficult to gauge, especially in this environment as rates are coming off a very low base. But global liquidity is beginning to tighten and the implications of the unwinding of the Fed's balance sheet have yet to be felt. The end of the era of excess liquidity (and excess returns) will soon be upon us.

South Africa

President Ramaphosa announced an economic recovery plan which helped firm the rand (+3.7%) but equities plunged 5.0% and are now 3.5% below the pre ANC conference level and 9.7% off the January Ramaphoria high.

The fact that the economy slid into recession in the second quarter highlighted the cost of the Zuma legacy. It is difficult in this environment to be optimistic, particularly with the ongoing pressures on emerging markets in general.

The Fund

The fund's 0.3% gain in September compares very favourably with the sharp fall in the JSE All Share Index (-4.2% total return). News flow from the fund's major holdings was generally very positive. Quantum Foods advanced 6% over the month, assisted by a strong trading update, while Comair shares gained 13% after solid results and a positive outlook statement. York Timbers reported excellent growth in core earnings, but remains unloved by investors partly due to the group's relatively high debt levels and absence of dividends in recent years. We believe the value of York's forestry assets will ultimately reflect in the share price and result in significant capital gains.

As required by legislation, we confirm that the fund has adhered to its policy objective and strategy.