Corospondent January 2015
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In 2014, equity markets produced real (after inflation) returns of around 5.5% and 4% for local and global markets respectively. Some investors may perceive these outcomes as anaemic, especially when framed against the heady performance of 2012 and 2013, when real returns of approximately 20% were the norm.
The merits of investing in single asset class or building-block funds, instead of a multi-asset class fund, has been one of the perennial debates in our industry ever since I joined it.
The strong run in the listed property sector last year contrasted sharply with the sell-off in mid-2013 that was triggered by the Federal Reserve’s decision to start phasing out quantitative easing.
At Coronation, we like fast-moving consumer goods (FMCG) businesses with strong, dominant brands in their respective markets. Strong brands create moats around businesses, which allow them to earn returns significantly above their cost of capital through the cycle.
There are only three ways to achieve sustainable growth in the South African economy. The country has to either accumulate jobs through private sector job creation; accumulate capital through investment; or boost productivity by combining employment and investment in a more efficient manner. Last year demonstrated how poorly the economy manages to achieve any of these.
2014 closed on a positive note for the South African bond market as the continued fall in energy prices – combined with expectations of further monetary policy easing in the developed world (specifically Japan and Europe) contributed to a compression in global and local bond yields, which supported other fixed income assets. This was despite some negative local news as Eskom’s inability to keep the lights on in South Africa added to mounting concerns over the entity’s financial sustainability, and the broader implications for domestic economic growth.
Looking back, 2014 certainly presented some choppy waters for investors to navigate. Some of the challenges included slowing economic growth in China, the demise of African Bank, disruption caused by load shedding, the outbreak of the Ebola virus, the collapse of commodity prices, the Russia/Ukraine conflict and the continued weakening of emerging market currencies.
'In economics things take longer to happen than you think they will, and then they happen faster than you thought they could.' This well-known quote from the late German economist Rüdiger Dornbusch sums up events during the last quarter of 2014. Global equity markets moved sideways during the three-month period, following their correction in early October.
Many investors do not view car companies in a particularly positive light. Given that a weighty 17% of the Coronation Global Emerging Markets (GEM) fund is invested in these ‘OEMs’ (original equipment manufacturers) – what gives us such substantial conviction in their appeal?
So you thought a six-month break on a desert island looked appealing and spent long hours in silent meditation, reflecting on self-actualisation, harmony and humanity’s ceaseless race to consume the planet. Now you’ve just made the return journey to find that the oil price collapsed from over $110/barrel to less than $50.