Investments to be acquired for the 1NVEST INFLATION LINKED BOND INDEX TRACKER FUND will consist of a spread of non-equity securities issued by the South African Government to the maximum permitted by the Act, and any other securities, which may be included in a portfolio in terms of the Act and relevant legislation, which are consistent with the portfolio's investment policy, but which will be limited to bonds.

Fund review

The review of the JSE CILI Government Bond Index (IGOV) in the last quarter saw no additions or deletions from the index. The fund performed in line with the Index. The R197 Government bond remained the largest bond in the fund and its yield increased from 2.81% as at end of June to 2.85% as at end of September. The modified duration of the bond decreased from 3.96 as at end of June to 3.71 as at end of September. The yield of the fund increased from 3.12% to 3.31% over the quarter. The modified duration of the fund decreased from 9.99 to 9.80 over the quarter

Market overview

Post a strong run of equity markets across the globe in the first half of 2019, global markets have since slowed down due to increased tension in the trade wars and continued slowdown in global economic data. Europe and USA continued with monetary easing to offset economic slowdown. Returns have hence been flat for the quarter apart from the emerging markets, with the MSCI World at 1.1% and MSCI EM at -2.1% for the quarter. Locally, GDP was 3.1% Q/Q in Q2 2019 reversing the Q1 2019 contraction, SARB cut rates by 25bps in line with census in their July meeting but left it unchanged in September. The national treasury published a white paper on structural reform including SOE reform, marking one of the first signs of structural reforms in the new Presidency. Locally, domestic asset classes such as equities (SWIX ALSI), bonds (ALBI), and cash (STeFi) recorded mixed returns of -2.14%, 1.5% and 1.8% respectively.

Looking ahead

Against the backdrop of slowing global economic growth, a pause in trade war, could provide some relief to the financial markets. But if trade uncertainty continues posing a significant drag on business and consumer confidence, we expect risk aversion will rise as the ability of developed markets and vulnerable emerging economies to weather the impact of trade wars remains uncertain. Additionally, emerging economies with sizeable dollar debts and fiscal deficits may struggle. Locally, uncertainty will remain high until the government provides evidence that SA’s economic policy and reforms are heading in the right direction for future growth. We believe investors should focus on liquid markets segments with risk dialled down compared with market benchmarks.

The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.

The STANLIB Inflation Linked Bond Index Tracker Fund will change it's name to 1NVEST Inflation Linked Bond Index Tracker Fund, effective from 17 October 2019

Fund review

The review of the JSE CILI Government Bond Index (IGOV) in the last quarter saw no additions or deletions from the index. The fund performed in line with the Index. The R197 Government bond remained the largest bond in the fund and its yield decreased from 3.16% as at end of March to 2.81%, as at end of June. The modified duration of the bond moved from 4.09 in March to 3.96 in June. The yield of the fund decreased from 3.27% to 3.12% over the quarter. The modified duration of the fund decreased from 10.11 to 9.99 over the quarter.

Market overview

In the second quarter of 2019, equity markets continued to shrug off any negative sentiment arising from the second half of 2018. The majority of equity markets across the globe recorded strong positive returns in the first half of 2019, with the MSCI World Index recording 15.6%, MSCI Emerging Markets recording 9.2% and the South African equity market as represented by FTSE/JSE Shareholder Weighted Index recording 9%. Global growth continues at a slower pace with many of the major economies progressing to later stages of the business cycle. The less hawkish Fed and the pause in trade wars provided some relief for financial conditions but the era of easy money has shifted towards gradual tightening of monetary policy. Locally, Cyril Ramaphosa led the ANC to a win in the national elections promising tighter reforms and improved governance at struggling state owned entities. But, weak first quarter GDP dominated post-election headlines. Locally, domestic asset classes such as bonds (ALBI), property (PCAP) and cash (STeFi) recorded gains of 3.7%, 4.5% and 1.8% respectively.

Looking ahead

Against the backdrop of slowing global economic growth, pause in trade war and a less hawkish Fed, there is potential for some relief to the financial markets. But if trade
uncertainty continues posing a significant drag on business and consumer confidence, we expect risk aversion will rise as the ability of developed markets and vulnerable emerging economies to weather the impact of trade wars remains uncertain. Additionally, emerging economies with sizeable dollar debts and fiscal deficits may struggle. After more than two years of steadily rising interest rates, 2019 could mark the peak for US treasury yields for the current business cycle, however the road ahead is likely to remain bumpy. Locally, uncertainty will remain high until the government provides evidence that SA’s economic policy and reforms are heading in the right direction for future growth. We believe investors should focus on liquid markets segments with risk dialled down compared with market benchmarks.

The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.

Fund review

The review of the JSE CILI Government Bond Index (IGOV) in the last quarter resulted in no additions to or deletions from the index. The fund performed in line with the index. The R197 Government bond remained the largest bond in the fund and its yield increased from 2.9% as at end of December to 3.16% at end March. The modified duration of the bond moved from 4.35 in December to 4.09 in March. The yield of the fund increased from 3.17% to 3.27% over the quarter. The modified duration of the fund decreased from 10.28 to 10.11 over the quarter.
Market overview

In the first quarter of 2019 equity markets shrugged off any negative sentiment arising from the second half of 2018. The majority of equity markets across the globe recorded strong positive returns, with the MSCI World Index recording 13.5%, MSCI Emerging Markets recording 11.1% and the South African equity market, as represented by FTSE/JSE All Share Index, recording 8%. Global growth continues at a slower pace with many of the major economies progressing to later stages of the business cycle. The less hawkish Fed provided some relief for financial conditions but the era of easy money has shifted towards gradual tightening of monetary policy. Locally, Eskom and corruption in other SOE’s remain in the headlines as domestic asset classes such as bonds (ALBI), property (PCAP) and cash (SteFi) recorded gains of 3.8%,1.73% and 1.9% respectively.

Looking ahead

Against the backdrop of slowing global economic growth, there is potential for trade uncertainty to continue, resulting in higher prices and a significant drag on business and consumer confidence. We expect risk aversion will rise as the ability of developed markets and vulnerable emerging economies to weather the impact of trade wars remains uncertain. Emerging economies with sizeable dollar debts and fiscal deficits may struggle. After more than two years of steadily rising interest rates, 2019 could mark the peak for US treasury yields for the current business cycle, however the road ahead is likely to remain bumpy. Locally, uncertainty will remain high until the widely anticipated national election provides some direction on the future of SA’s economic policy. We believe investors should focus on liquid market segments with risk dialled down compared with market benchmarks.

The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.

Fund review

The review of the JSE CILI Government Bond Index (IGOV) in the last quarter saw no additions to the index or deletions from the index. The fund performed in line with the Index. The yield of the fund increased from 2.8% to 3.0% over the quarter. The modified duration of the fund increased from 10.7 to 10.8 over the quarter.

Market overview

Over the third quarter US equities led, driven by the strong growth environment and confidence in the US economy. In contrast to the attractive returns of US equities, fixed income returns have been uninspiring. Strong US data has kept the Fed on track to hike rates. Global growth has however not been as synchronised as last year. UK markets have been sensitive to suspicions of a no-deal on Brexit, and there has been a slowdown in manufacturing in the Eurozone, led by fewer exports into China. The rebound in the US dollar has made emerging markets especially vulnerable to negative sentiment and fear. Dollar denominated assets took the lead over local assets as the Rand lost 3.03% to the Dollar over the third quarter. In Rand terms foreign equity delivered the highest returns (MSCI World +8.17%) and outperformed foreign bonds (Barclays Global Treasury Bond Index +1.26%). In South Africa the second quarter saw a decline in consumer confidence and an increase in consumer spending. Cash (STEFI +1.74%), bonds (ALBI +0.81%) and inflation-linked bonds (ILBI +0.44%) outperformed both property (PCAP -2.22%) and equities (SWIX -3.34%). Seasonally adjusted GDP shrunk for a second consecutive period, driven by falling output from agriculture, transport and trade.

Looking ahead

Against the backdrop of strong US economic growth, there is potential for the trade conflict directed from the US to deepen, resulting in higher prices and a significant drag on business and consumer growth, and ultimately global growth. While growth appears healthy currently, we expect risk aversion to rise as the ability of developed markets and vulnerable emerging economies to weather the impact of trade wars remains uncertain. Additionally, emerging economies with sizeable dollar debts and sizable fiscal deficits may struggle. We believe investors should focus on liquid markets segments with risk dialled down versus market benchmarks. The commentary gives the views of the portfolio manager at the time of writing. Any forecasts or commentary included in this document are not guaranteed to occur.