Fund Manager Comment - Oct 17 - Fund Manager Comment13 Dec 2017
An Economic Indication A business cycle refers to the fluctuations or pace in the overall level of economic activity, with Investopedia defining the economic cycle as: “the natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). There is no clear-cut motive for the causes of these fluctuations. The monetarist school of economic thought ties the economic cycle to the credit cycle, whereby the Keynesian approach argues that changes in aggregate demand, spurred by inherent instability and volatility in investment demand, is responsible for generating cycles.” When investors make the statement of identifying where in the cycle we are, the investor is making comparisons against this stylised reference cycle.
There are four stages of the economic cycle:
Expansion: The real GDP of an economy is expanding at an increasing rate. Peak: The real GDP of an economy has increased, at a marginally slow rate, and is now reaching a high point. Contraction: The real GDP of an economy decreases; two consecutive negative quarters of GDP contraction indicate a recession. GDP may also contract, but still be positive (grow, just albeit at a slower rate) Trough: The economic contraction slows down, and is now reaching a low point. Recessions often bring about destructive portfolio losses and uncomfortable draw-downs. Avoiding these losses will help preserve your capital and can significantly boost portfolio performance. Although you can't time the market, you can improve your returns by knowing where we are in the business cycle, and adjusting asset allocation to take advantage of these phases.
Knowing which phase we are in is achieved by the monitoring of leading and coincident indicators. Shifts in these economic indicators will describe the movements of the market cycle through the phases. Inflation rates, interest rates, unemployment, consumer confidence and business confidence indices are but a few of the indicators closely monitored for any movement.
The SARB recently declared: “Having duly considered all the available information, the final reference date for the upper turning point in the South African business cycle was established in November 2013”. This meant that December 2013 was the first month of a downward cycle in South Africa’s economy. The cycle continued on its downward trajectory until Q4 2016. This was the longest economic downturn (when compared to the 32-month average) since 1974. The indicators have shifted into the Trough phase indicating that the contraction has slowed and has entered a low growth phase.
Beyond knowing where in the business cycle we are as investors, it is easily argued that knowing what to expect next is more important; this is why researching expected asset class returns in each segment of the cycle is important. Further to this, it is prudent to note that economic participants have witnessed economic policy being applied as has never been done before; this calls for intellectual rigour when considering macro-economic variables.. The Portfolio is behind the benchmark, the average of the South African – Multi Asset – Medium Equity category year to date. It is however easily outperforming the return objective of CPI +3% over the same period
Management Company Switched - Official Announcement05 Dec 2017
The fund switched Management Company from MET Collective Investments Ltd. to Sanlam Collective Investments (RF) (Pty) Ltd. on 05 Dec 2017.
Mandate Overview05 Dec 2017
The portfolio aims to provide investors with a high long term total return. It conforms to regulations governing retirement portfolio investments and will comply with Prudential Investment Guidelines within the limits prescribed by the Act.