Fund Review

The fund delivered a return in the second quarter of 2015 of -0.6% in dollars or -0.3% in rands, as the rand lost -0.3% to the dollar, -5.8% to the pound and -2.9% to the euro. Over the year to end June 2015 the fund did +15.5% in rands, or +0.9% in dollars. The return was good because the dollar was all-powerful in the year to end June. The euro lost an astonishing 20.2% against the dollar in the year, while the pound lost 8%.

Regional allocation added value as developed Asia, where the fund is underweight, underperformed, while the overweighting in Japan helped again. The fund's best sector performance came from Telecommunications Services (1% of fund) with a dollar return of 8.7% (benchmark 3%), followed by Healthcare's 7% (benchmark 1.5%). This sector is 12.4% of fund, similar to benchmark.

The fund manager Threadneedle lowered the weighting to Emerging Markets to 9% of fund versus 10.6% for the benchmark, while increasing the exposure to Europe excluding the UK to 16.2% from 12.5%, now ahead of the benchmark's 15.7%. Emerging markets returned -2.5% in the quarter, while Europe did +3.5%. The best return came from the UK with 6.6% in dollars, more than double the benchmark's 3%. The US allocation remains at 53.8% of portfolio (benchmark 51.5%) and Japan is also still overweight at 11.4% (benchmark 7.9%).

Looking ahead

The fund manager, Threadneedle Investments in London, remains constructive on equities relative to other asset classes, as markets are supported by accommodative central banks, the sharp fall in energy costs and a low inflation and interest-rate outlook; but they are wary of risks, including rate hikes in the US, political instability in Europe and issues in Russia and Brazil. In Japan, they are very encouraged by the shareholder-friendly developments that are taking place.

Threadneedle favours secular-growth companies and high-quality franchises over cyclical areas of the market, because of the higher risks out there.