The earnings season continued with positive momentum in the US, as five of the ‘magnificent seven’ US companies reported quarterly results that met or surpassed expectations, aiding in a 5.3% rise in the S&P 500 over the month. With the majority of S&P 500 companies having reported, a significant portion exceeded earnings projections. Economic indicators remained strong, with the US composite Purchasing Managers’ Index (PMI) indicating sustained expansion in February and the addition of 353,000 jobs in January. European stock markets, however, did not fare as well, with the MSCI Europe ex-UK index increasing by 2.8% in February, compared to a 4.3% rise in the developed market MSCI World Index. This occurred despite an unexpected surge in the eurozone composite PMI in February, which hinted at an end to the region’s growth slump. UK stocks also faced difficulties, with a 1.1% decline year-to-date, after a fourth-quarter GDP contraction that signified a technical recession last year. Moreover, recent earnings reports from UK companies have been less than stellar, prompting analysts to lower their profit growth forecasts for 2024 to 4.7% year-on-year. The Japanese TOPIX Index saw a 4.9% increase over the month, in spite of a disappointing GDP report for the fourth quarter, which also indicated a technical recession in the latter half of 2023. A weakening yen, which fell 2.3% against the US dollar in February, likely benefitted Japan’s export-driven stock market.the fixed income domain, US inflation data for January came in stronger than expected, with a 3.1% year-on-year increase, leading to reduced expectations for Federal Reserve rate cuts in 2024 and putting pressure on US Treasuries,

which fell by 1.3% over the month. UK wage growth in December was higher than anticipated, with a 5.8% year-on-year increase, causing investors to reassess their expectations for Bank of England rate cuts, given the potential for persistent inflationary pressures. This resulted in a 3.6% year-to-date decline in UK Gilts. Eurozone government bonds also experienced losses, with German Bunds decreasing by 1.4%. However, emerging signs of economic recovery in the eurozone helped narrow the spread between Italian and German sovereign debt. In the credit sector, high yield bonds demonstrated resilience against interest rate sensitivities, outperforming investment-grade counterparts. The Bloomberg Global Aggregate Corporate index, which tracks developed market investment-grade bond performance, is now down 1.9% year to date, whereas US high yield and euro high yield bonds have seen gains in the early months of 2024. In conclusion, stock markets were buoyed in February by enduring strength in the US economy and emerging signs of recovery in Europe. This resilience, along with the persistent nature of inflationary pressures, suggests that central banks may maintain their current policies for some time and in fact tighten too much. Consequently, bond markets faced headwinds due to the diminished likelihood of near-term rate reductions. However, core bonds continue to offer attractive income opportunities and diversification benefits amidst an economic slowdown. Within the equity markets, prioritizing high-quality companies with solid financial foundations appears wise which diversifying in into still cheap jurisdictions like China.

South African stocks underperformed their emerging market counterparts in February, declining by 2.4%. This weakness stemmed primarily from the resource sector, which was hit by falling commodity prices, especially in energy and platinum. Domestically focused companies in the industrial and financial sectors also faltered. Local bonds followed the trend of their global counterparts, dipping by 0.6%. However, a few bright spots emerged. Select equities with ties to China, like Naspers, Prosus, and Richemont, provided some positive returns in the otherwise sluggish market. These companies took direction from the stimulus measures being put in place by Chinese authorities to halt the rut in that market but also (and more importantly) some upbeat earnings releases from the likes of Alibaba. With this market trading at such a discount both to developed market peers and relative to its own history, the sharp rebound in Feb (and into early March) is a reminder just how quickly sentiment can shift. Enoch Godongwana, (Minister of Finance) delivered the 2024/25 budget which sadly offered little surprises, only reiterating the government’s commitment to fiscal consolidation. Ambitious revenue projections, spending cuts, and plans for improved fiscal management were all on the agenda, reflecting a familiar trend in recent years. Notably, the introduction of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) as a debt-reduction tool with a R150 billion allocation is a welcome development. National Treasury now forecasts a peak debt-to-GDP ratio of 75.3% in 2025/26 (previously 77.7%), followed by a decline. While utilizing GFECRA for debt redemption appears sensible, potential risks remain, including future support for state-owned enterprises, national health insurance implementation, and higher social grants (though currently budgeted only for inflation adjustments). The sanguine view on the budget was clear to see later in the month as the yield curve drifted higher during February as investors remain concerned about the fiscal outlook. As we approach the run up to the election, we expect local government bonds and domestic equities to come into focus, given the attractive valuations and perhaps one of the weakest election results for the rulings in party in the new South Africa. One will also have to assess the importance of potential global monetary loosening which is typically good for EM currencies and bonds which so often gain favour as the important growth tax eases.

All performance figures in ZAR unless otherwise stated.

In February 2024, the Iza Global Balanced Fund and the Iza Global Equity Fund exhibited noteworthy performances amidst a backdrop of mixed market conditions. The Iza Global Balanced Fund continued its exceptional run from the previous year, advancing nearly 3% year-to-date in GBP, outperforming its peer group by more than double and securing its position in the top quartile. This achievement reflects the fund’s strategic asset allocation and adept selection of high-performing investments. The Iza Global Equity Fund maintained a robust stance, slightly trailing the now highly concentrated MSCI World Index slightly but surpassing other global equity peers. The inclusion by both Funds of T.Rowe Price proved to be a strategic triumph, with a more than 7% increase for the month, buoyed by stellar earnings from tech giants Nvidia and Amazon. .Both also notably benefited from Berkshire Hathaway’s substantial growth. Berkshire Hathaway’s operating earnings surged by over 28%, and its stock appreciated by just over 7% for the month in GBP, making it a significant contributor performance. Additionally, exposure through Fundsmith to Meta, which saw an extraordinary single-day gain of over 20%, the largest before being surpassed by Nvidia’s monumental earnings announcement gain of over $277 billion in the same month. Fundsmith was up close to 4% for the month. Scottish Mortgage had a more modest gain of 3.5% and a slight downturn in Smithson, featured only in the Equity Fund, early signs in March suggest a meaningful rebound this fund though. The Bond component in Iza balanced was a slight detractor as yields rose , however we still believe that should inflation continue to moderate as growth slows this asset class will benefit meaningfully and in the meantime are paying a very attractive yield.

The broader market context in February showcased a relatively positive outlook for equities, propelled by strong economic indicators and impressive earnings reports, contrasting with the challenges faced by the fixed income sector. Emerging markets, especially China, showed a strong recovery, while developed markets like Japan achieved significant milestones. However, the fixed income market grappled with adjustments in interest rate expectations, particularly in the US Treasury market, and faced downward pressure due to stronger-than-expected inflation data and persistent inflationary concerns. This environment underscored the nuanced landscape in which the Iza funds operated, navigating through both opportunities and obstacles. The performance of the Iza funds against this complex backdrop reflects a well-executed investment strategy that leverages key market movements and robust stock selections. The balanced fund’s diversified approach, blending equity and fixed income investments, allowed it to capitalize on the equity market’s strength while mitigating the impact of the bond market’s downturn. Meanwhile, the equity fund’s focus on high-quality companies with solid financials and strategic exposures to high-growth sectors like technology demonstrated its ability to navigate market volatility and harness growth opportunities. Going forward, both funds’ emphasis on diversification, quality investments, and strategic market positioning is likely to continue driving their success in an evolving market landscape.