Monthly fund highlights: July 2022

In what were complex market dynamics across all asset classes in July, our portfolios delivered mixed results, with our SA equity selection adding above-benchmark returns. This played a key role in supporting both the relative and absolute returns of our multi-asset and equity portfolios.

Our overweight holdings in such stocks as Textainer, Richemont, Glencore (which rebounded after strong interim results) and banking groups Absa and Investec added value for clients, as did our underweight in Amplats. However, among the detractors were Sasol (one of our larger overweights which was hurt by lower oil prices), British American Tobacco and our underweight in Shoprite.

July was also a rare month in which our conservative positioning offshore – having preferred cash over global equities and bonds – did not add value to portfolios, given the outperformance of global equities versus global cash. While we are still overweight global cash, during the period we added to our global equity holdings to become more neutral, given that some market valuations had fallen to their most attractive levels since 2009. However, we retained our short position in global bonds due to the still-high risks of inflation and interest rates surprising to the upside.

Going forward, in our view, SA equity valuations remain attractive even though in certain sectors corporate earnings are at or above trend – especially resources – and economic growth expectations have been revised broadly lower. There is still a great deal of fundamental value in our local market, with considerable negativity built into the consensus earnings outlook. Equally, SA bonds remain attractive. With 10-year yields at just over 11% and longer-term inflation expectations still relatively well-contained thanks to the South African Reserve Bank’s efforts, investors are looking at a prospective real return which should be above 6% p.a. over the medium term – a very attractive return package, particularly when faced with cash returns that will struggle to beat inflation.