Fund Review

The fund had a negative dollar return in the final quarter of 2016 of -3.5% (benchmark +1.3%), or -3.7% in rands, as the rand lost just -0.2% against the dollar, but gained +5.2% against the pound and +6.8% against the euro. Over the year to end December 2016 the fund did -0.8% in dollars (benchmark +8.5%), or -12.3% in rands, as the rand gained 11.5% against the dollar. So it was a poor quarter and year for the fund after a very good year in 2015.

Financials (18.6% of fund, similar to the benchmark) performed best during the quarter, returning +12.3% for the benchmark, but only +5.2% for the portfolio, meaning share selection hurt the fund. Consumer staples (7.8% of the portfolio at end September) had the worst return of -14.9% in the portfolio, while the benchmark return was just -5.9%. The biggest sector by far in the fund, Information Technology (23.8% of fund versus 15.5% for benchmark) returned a disappointing -5.7% in the quarter (benchmark -0.8%) as expensive technology shares got sold off post Trump’s election victory in favour of cheaper industrial shares. For example, Nintendo lost -20% in the quarter, Alibaba lost -17% and Amazon.com lost -10.6%. JP Morgan was one of the better performers in the fund with a 29.8% return. Emerging Market shares, overweight in the portfolio at the beginning of the quarter at 12.8%, returned -11.4% in the quarter (benchmark -4.2%). The portfolio underperformed the benchmark in all regions.

Looking ahead

Fund manager Columbia Threadneedle expects continued political uncertainty, rising populism and policy divergence in 2017. They prefer to continue focusing on quality growth, seeking competitively advantaged companies exposed to a secular growth story. Themes of technology and changing demographics continue to drive their investments, but they have added to highquality cyclical companies that could benefit from a Trump presidency.