31
December 2024
Online Funds’ performance for the quarter ended 31 December 2024
Adriaan Pask
Chief Investment Officer, PSG Wealth
IM 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.
Table 1: Asset class returns in rand terms
Domestic funds performance and positioning
Table 2: Fund performance versus sector average
The multi-asset solutions added absolute returns during a tough quarter for domestic
growth assets. The income portion of our funds cushioned returns, as allocations to
medium-term government bonds added value. The equity component was flat for the
quarter, as SA stocks pulled back. Security selection within the resources and real estate
buckets detracted the most from the equity building block’s performance. Hammerson,
Glencore and AB InBev are a few of the more notable performance detractors. Fund
composition across all three solutions remained unchanged during the quarter.
Our underlying managers in the PSG IM MA Income FoF continue to favour bonds in the
three to seven years space. The increased allocations to them were funded by deploying
cash and reducing allocations to inflation-linked bonds. The portfolio delivered an above inflation return over the calendar year, improving since-inception absolute and relative performance. In the Cautious and Growth FoFs, the income building block they share with
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.
Table 3: Local FoF composition (%)
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.
Table 4: Relative ranking
