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Market Insights

April emphasized the ongoing concern regarding persistent inflation, which poses a significant threat capable of disrupting the surge in risk assets. The month of April proved challenging for both equity and fixed income markets. The release of robust US inflation figures coupled with a seemingly weak initial assessment of the US GDP for the first quarter sparked fears among investors that central banks might delay monetary policy easing. Consequently, both stock and bond markets reacted negatively, witnessing a decline of 3.7% in developed market equities and a 2.5% fall in global bonds over the month. However, emerging market equities managed to buck this trend, recording a modest 0.5% increase due to heightened interest in undervalued Chinese stocks and greater exposure to commodities. The impact of shifting interest rates was particularly evident in sectors sensitive to such changes, notably small caps and REITs. Small caps experienced a drop of 5.1% in April, while REITs saw a decline of 6.3%, both lagging far behind the overall performance of large-cap markets. The fixed income arena also felt the repercussions of altered rate expectations, with markets recalibrating their projections for US rate cuts. April witnessed the pricing out of one and a half anticipated rate cuts for the year in the US, pushing back the timing for the first cut. Notably, 2-year Treasury yields surged by 40 basis points to 5.0%, while 10-year Treasury yields rose by 47 basis points to 4.7%. Commodity prices enjoyed a boost from a resilient economic climate and escalating tensions in the Middle East. The Bloomberg Commodities Index surged by 2.7% in April, emerging as the top-performing major asset class for the month. Rising energy prices, coupled with reduced sensitivity to interest rate fluctuations, buoyed the value segment of the equity market, which outpaced growth-oriented segments.

Despite the overall downturn in markets, European equities outperformed their US counterparts in April. This was attributed to an upswing in the eurozone’s flash composite PMI, reaching 51.4, significantly surpassing the recessionary level of 47.6 recorded in December. UK equities, supported by a substantial share of energy and commodity companies, posted positive total returns of 2.5%, emerging as the top-performing equity market for the month.

The S&P 500 experienced a 4.1% decline in April, as rising bond yields exerted pressure on valuations. Nonetheless, the economic landscape remained conducive to corporate earnings, with many companies surpassing expectations during the first quarter earnings season. However, investors displayed a heightened willingness to penalize companies falling short of estimates, scrutinizing whether earnings justified the previous valuation expansion.

Japanese equities relinquished some of the gains accumulated over the previous months due to widening interest rate differentials between Japan and other developed markets, which weighed on the yen and fueled concerns about imported inflation dampening domestic demand. In April, eurozone inflation remained steady at 2.4% year-on-year, though the services component experienced a 30 basis points decline to 3.7%. Similarly, headline inflation in the UK receded, though concerns persisted regarding the resilience of certain core components.

The prospect of a less inflationary environment, combined with expectations of stable yet gradual growth in the euro area and UK, bolstered confidence in potential rate cuts by the European Central Bank (ECB) and Bank of England (BoE), with the first cut from the ECB anticipated over the summer, albeit with only two cuts fully priced by year-end. The BoE is expected to follow suit, albeit slightly later, with the first cut currently priced for September.

The relatively subdued increase in euro bond yields contributed to the region’s outperformance, particularly noticeable in credit markets where spreads remained stable in April. Euro high yield emerged as the sole major sector to evade negative returns. In sovereign bonds, euro sovereigns outshone US Treasuries and UK Gilts, with the high-growth periphery in the eurozone exhibiting stronger performance than core European counterparts.

In summary, April underscored the persistent threat of inflation, which has the potential to disrupt the rally in risk assets. Consequently, it remains imperative to consider both recessionary scenarios and the specter of persistent inflation in portfolio risk management. High-quality bonds with medium to longer maturities could once again prove beneficial in the event of a deflationary growth shock. Conversely, alternative investments such as gold, oil and industrial commodities in the face of persistent inflation.

South Africa

In April, South African equities continued to outperform global markets for the second consecutive month, largely driven by the resources sector, particularly due to a significant increase in Anglo American’s price triggered by BHP’s bid. Locally, South African bonds rebounded after initial fluctuations, influenced by the release of election poll results which provided some comfort to investors regarding the upcoming elections.
Headline year-on-year inflation for March moderated to 5.3%, slightly below market expectations, primarily due to a slowdown in food inflation. However, transport prices continued to rise, fueled by an increase in fuel prices. Looking ahead, anticipated fuel price hikes in April and May are expected to further complicate the inflation outlook.

The South African Reserve Bank (SARB) expressed concerns about potential inflationary pressures, hinting at the possibility of delaying the first repo rate cut until the last quarter of the year. Discussions within the SARB about potentially lowering the inflation target reflected a cautious approach to monetary policy.

Economic indicators remained mixed, reflecting the complex challenges facing the South African economy. While the mining sector showed strength in February, overall output for the first two months of the quarter remained below that of the previous quarter. Retail sales volumes remained muted, but wholesale trade recorded a consecutive monthly increase.
Looking ahead, uncertainty surrounds monetary policy and market dynamics, with the market adjusting expectations of monetary easing and considering the possibility of a rate hike by year-end. Concerns over South Africa’s debt sustainability and global interest rate hikes initially led to bear steepening in the yield curve but reversed toward the end of the month. Election surveys suggesting a more stable government post-elections provided some relief to market participants amidst continued volatility.

In conclusion, April witnessed shifting global economic dynamics influencing both local and international markets. While South African equities showed relative resilience, concerns regarding inflation, economic growth, and political uncertainties shaped investor sentiment and market outcomes. Amidst the volatility, opportunities may arise as the country heads into a pivotal election period.

All performance figures in ZAR unless otherwise stated.

The Iza Portfolios

In April 2024, the Iza Global Balanced and Iza Global Equity faced some pressure that was reflective of broader financial conditions. Despite a challenging month across most asset classes, both funds managed to limit their losses and performed commendably compared to their respective benchmarks and peers. The Iza Global Balanced Fund remains more than 2% ahead of its global peers in the GBP EAA Global Flexible category and continued to position itself in the top quartile year-to-date. The Iza Global Equity Fund similarly outperformed, achieving an edge over the MSCI World and ASISA Global Equity peers during the month. This resilience underscores the funds’ capacity to capture large part of the upside during broader market upswings and cushion the falls during downturns, benefiting significantly from alpha generation by various Global equity names and diversifiers such as gold ( up over 4% in GBP ) in the Balanced Fund.

The underlying holdings within each fund demonstrated the strategic foresight of their management. High growth names like Scottish Mortgage encountered setbacks due to rising interest rates, experiencing a notable decline that was to be expected. Similarly, the iShares US Treasury ETF faced a downturn, shedding 3% due to the recalibration of rate cut expectations in the US. However, T. Rowe , Nomura and Dodge and Cox all bested the MSCI World index, showcasing strong stock selection that surpassed earnings expectations. Particularly, Google emerged as a standout performer, surging over 10% towards the month’s end following robust earnings reports, contributing positively to both funds’ performances. Dodge and Cox were flat for the month while Nomura only lost 0.5% vs the GBP MSCI World Index down 3%.

April’s broader market dynamics were largely influenced by persistent inflation concerns and shifting central bank policies, which negatively impacted both equity and fixed income markets. Developed market equities and global bonds both saw declines, with US economic indicators like inflation figures and preliminary GDP assessments adding to investor apprehension about delayed monetary policy easing. These factors led to a significant readjustment in interest rate expectations, with notable increases in US Treasury yields. Despite these challenges, emerging markets showed resilience, partly due to strong interest in undervalued Chinese stocks and commodities, which were among the few bright spots in a generally bearish market environment. The month’s performance has highlighted the importance of diversification and strategic asset allocation in managing portfolio risks, particularly during periods of market volatility.

The Iza Funds’ ability to stay ahead of peers despite a down market illustrates the effectiveness of their investment approach, combining growth-oriented assets with protective elements like gold and quality bonds. This strategy not only mitigates risks but also positions the funds to capitalize on potential market recoveries. As global economic and financial conditions continue to evolve, the Iza Funds’ adherence to a disciplined investment process and their proactive management will be crucial in navigating the uncertainties ahead.

Quote of the month

In investing, what is comfortable is rarely profitable.

Robert Arnott

Funds’ Performance Summary

Asset Class Performance (Base Currency)