Domestic online funds performance and positioning

South African equity markets experienced a third consecutive monthly decline in December, slightly tempering an otherwise successful year. Miners were primarily responsible for the JSE’s negative performance during the month and were the only major JSE segment to deliver negative returns for the year. Conversely, JSE-listed stocks with earnings primarily tied to the domestic economy saw modest gains in December, concluding a strong year for this sector. South Africa’s 10-year government borrowing rate increased to 10.30% per annum in December, mirroring the rise in global borrowing rates. Despite an increase in US longer-term government borrowing rates during 2024, domestic borrowing rates declined, contributing to a 17% year-over-year return for the JSE All Bond Index.

Developed market equities experienced a downturn in December, though this was insufficient to offset a strong year for equity investors. Emerging market stocks performed better than their developed market counterparts in December but significantly underperformed them for the entire year. Chinese equities were the key driver of emerging markets’ December outperformance, as the Chinese government continued to implement measures aimed at stimulating sluggish economic growth.

The multi-asset solutions added absolute returns during a tough quarter for domestic growth assets. The Income FoF helped cushion returns over 4Q24. Both funds added absolute returns over the quarter and ended the calendar year ahead of their benchmarks. This helped them maintain their above-average performance since inception and over their recommended investment horizons.

The PSG IM Opportunity Equity FoF pulled back over the quarter. The fund’s underlying managers, who favour SA Inc stocks, had a tough quarter. Underlying managers who favour miners detracted the most from performance. Mazi, the bottom performer over the quarter, saw its resources stock picks detract the most from fund returns. All Weather was the top performer for the quarter and its stock selection within industrials and real estate helped it generate relative outperformance. Our underlying managers continue to allocate to attractively priced domestic stocks poised to do well as economic conditions improve. During the quarter, they further upweighted financials, this coming at the expense of their holdings in industrials.

PSG IM Global Flexible Dollar Fund

The Global Flexible solution experienced negative returns in the fourth quarter, underperforming both in absolute and relative terms. The fund returned fell by 3.10% over the three-month period, trailing the sector average by 1.60%. Despite last quarter’s performance, the fund has demonstrated strong long-term results, achieving since-inception outperformance of its benchmark. This quarter’s performance was mixed across underlying managers. Four out of eight managers outperformed the sector average, with one in the first quartile and three in the second. Veritas Global Real Return was the top performer, outperforming the benchmark by an impressive 5.10%. The fund’s utilisation of hedges effectively mitigated downside risks, resulting in a positive absolute return in an environment where most assets declined. Conversely, PSG Global Flexible, a value and alpha-focused manager with a significant equity allocation (close to 85%), underperformed the peer group by 10% due to the risk-off market conditions.