Fixed income did not help diversified investors absorb equity losses, with the Bloomberg Global Aggregate falling 1.4% (USD) in August as sovereign yields rose. Yields on the 10-year US Treasury increased by 16 basis points (bps), to 4.1. In early August, Fitch, a prominent credit rating agency, lowered the credit rating of the United States government from AAA to AA+. They pointed to concerns about the country’s unsustainable debt and deficit trends as well as growing political turmoil as reasons for this downgrade. Despite sparking intense discussions among political and financial experts, this decision didn’t significantly affect the interest rates on 10-year US Treasury bonds.

Surprisingly, those rates only saw a minimal increase following Fitch’s announcement. However, as the month progressed, the yields on these bonds did climb higher. This was primarily due to unexpectedly positive economic data and a substantial increase in bond issuance during that period. Market pricing suggests the Fed could deliver one final hike before year-end, followed by four or five rate cuts in 2024. The August purchasing managers’ indices (PMIs) certainly supported this dovish outlook, as the manufacturing and services PMIs fell to 47 and 51, respectively.

Overall, incoming economic data remained solid Notably, the labor market, while displaying a gradual moderation, maintains its underlying robustness. In the month of July, payroll employment expanded by 187,000 jobs, registering a minor deviation from the consensus projection of 200,000. Concurrently, the unemployment rate demonstrated further resilience, declining to a commendable 3.5%, emblematic of the enduring vigor within the job market. Additionally, average hourly earnings exhibited a positive surprise, boasting a year-on-year growth rate of 4.4%.

In the realm of inflation, the headline Consumer Price Index (CPI) registered a modest uptick in July, reaching 3.2% year-on-year, primarily attributable to elevated food and energy costs. Meanwhile, the core CPI exhibited a slight deceleration, settling at 4.7% year-on-year, down marginally from the 4.8% figure recorded in June. The minutes of the Federal Reserve (Fed)’s July meeting nevertheless revealed that most officials remain concerned about inflation, and thus left the door open for additional rate hikes if necessary. Jerome Powell’s Jackson Hole speech, unlike last year, has been well received by financial markets. Overall, the Fed’s policy will remain data dependent with a bias to tighten if necessary.

In August, South Africa’s FTSE JSE All Share Index recorded a decline of 5.1%, though it had seen a year-to-date increase of 2.6%. Simultaneously, the FTSE JSE Capped SWIX retreated by 4.8% for the month, boasting a year-to-date growth of 2.8%. In contrast, the SA Listed Property Index managed to achieve a modest gain of 0.8% during the same month, while its year-to-date performance remained at a decline of 4.7%. Across various sectors, resources, industrials, and financials all experienced negative outcomes. The Resi-10, which focuses on resources, saw a significant decline of 10.3% for the month and an overall year-to-date decrease of 18.6%. Investor sentiment continued to be negatively impacted by ongoing load shedding, which is now estimated to impose an additional R400 billion burden on the economy compared to the previous year, as reported by the Minister of Electricity. During the month, South Africa hosted the BRICS Summit in Johannesburg, where significant discussions revolved around positioning the bloc as a formidable economic alternative to Western counterparts. The summit’s noteworthy outcome was the inclusion of Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates as new members, effective at the outset of the upcoming year. Economic indicators for the period presented a mixed picture: retail sales fell short of consensus forecasts, headline inflation remained comfortably within the South African Reserve Bank’s target range of 3-6%, and mining production exceeded market expectations. Nevertheless, it proved to be a challenging month for the mining sector, grappling with reduced commodity prices and concerns over China’s slowing economic growth.

All performance figures in ZAR unless otherwise stated.

The Iza Global Equity Fund declined by 2,37% (GBP) in August. While the Iza Global Balanced Fund declined by 1,52% (GBP) for the month. The Stable Model Portfolio declined by 0,74% (GBP) for the month.

In the last month, we have persisted in refining the Iza portfolios. Notably, we have continued to increase our positions into the iShares Core MSCI World ETF , Nomura Global High Conviction Fund, and T.Rowe Global Focused Growth Equity Fund. Our intention is to progressively enhance these holdings until we attain our designated allocation for each one. We maintain ongoing vigilance over our portfolio positions and continuously assess market opportunities. Our proactive approach involves strategically positioning our portfolios to capitalize on market weaknesses and forthcoming opportunities.

Analysing the underlying fund holdings, we note that Berkshire Hathaway emerged as the primary contributor to the fund’s performance, yielding a gain of 2.3% (in USD). This reaffirms the value proposition of including Berkshire Hathaway in our fund and underscores the diversification benefits it provides. Conversely, Scottish Mortgage exhibited the most substantial detractive impact on the fund’s performance, experiencing a decline of -6.8% during the month. Our largest holding, the Fundsmith Equity Fund, saw a marginal decline of -0.80% in the same period. Notably, Fundsmith made strategic portfolio adjustments, including the replacement of their Estée Lauder stake with Marriott, alongside initiating a new position within the fund—a detail to be unveiled upon reaching their desired allocation. Looking ahead, our outlook emphasizes the significance of maintaining a well-diversified portfolio with a steadfast emphasis on quality assets to navigate the evolving market landscape effectively.

Economists generally talk about two different inflation metrics. There’s regular, full-fat inflation, often called “headline,” and “core” inflation, which takes out the volatile costs of energy and food. Recent Consumer Price Index (CPI) data from the BLS showed a marked difference between the two, as rising oil prices pushed up headline inflation as core inflation eased. From the stock market’s reaction and analyst notes, the consensus narrative has emerged that the cooling core numbers are good for stocks because they give the Fed reason to believe its measures to cool inflation are working.

Source: Source: Yahoo Finance