The third quarter of 2024 was defined by the start of a global rate-cutting cycle, as central banks moved to support economic growth amid cooling inflation. The Federal Reserve’s 50 basis point rate cut in September was particularly impactful, driving a late-quarter rally in equities and boosting fixed-income markets. Emerging markets, supported by stimulus measures from China, also posted strong gains, particularly in the Asia ex-Japan region. US equities were buoyed by lower interest rates, with small-cap stocks and real estate outperforming as interest-rate-sensitive assets rebounded.

Commodities presented a mixed picture, with oil prices falling sharply, while gold hit new highs, driven by central bank buying and lower yields. Within fixed income, the quarter saw strong returns from US Treasuries and European sovereign bonds, as investors sought higher yields in a more favorable rate environment. Corporate bonds, particularly investment-grade credit, also delivered robust performance, further supporting diversified portfolios like the Iza Global Balanced and Iza Global Equity Funds.

The third quarter of 2024 was marked by both volatility and opportunity, and both the Iza Global Balanced and Iza Global Equity Funds were well-positioned to capture gains and mitigate downside risks. The introduction of Guinness Global Equity Income Fund and the structured note replicating MSCI World performance added valuable diversification and protection to the portfolios, while strategic exits from Fundsmith and Smithson ensured that the funds remained aligned with market shifts.

Berkshire Hathaway, bonds , gold , and quality managers like Nomura played significant roles in driving performance throughout Q3, with the funds benefiting from exposure to high-quality names in a more stable rate environment. As we move into Q4, both funds are well-prepared to navigate the evolving economic landscape, with a focus on capturing further upside while maintaining downside protection.

With inflation under control and central banks signalling further rate cuts, the outlook for equities and bonds remains constructive, and the strategic positioning of the Iza funds ensures they can continue delivering strong returns to investors.

September 2024 saw a wave of positive developments wash over global markets, with South Africa riding the current of favourable sentiment, delivering strong returns for investors. The Federal Reserve, following in the footsteps of other major central banks, implemented a rate cut in September. This marked a significant shift in monetary policy, signalling a global easing of financial conditions. This decision, coupled with China’s announcement of a comprehensive stimulus package, injected optimism into global markets, particularly for emerging markets like South Africa.

The Chinese stimulus plan had a particularly impactful ripple effect, sending a strong signal to global markets. This surge in Chinese equities, driven by the anticipated economic boost, also extended to commodity prices, with iron ore prices experiencing a remarkable 24.4% jump in the last five days of the month.

The rand strengthened against the US dollar, buoyed by the SARB’s rate cut, the attractive interest rate differential between South Africa and the US, and the positive sentiment surrounding China’s stimulus. This combination pushed the rand below R17.20 for the first time since January 2023, providing a much-needed boost to the currency’s value.

The local bond market however is something to remark on following its impressive rally, gaining 24% in US$ terms on a year-todate basis and comfortably ahead of the S&P 500 which has returned 22%. In ZAR terms, SA bonds have returned 16.7% over the same period.

Headline inflation for August slowed to 4.4%, dipping below the SARB’s target range for the first time in over three years. This positive trend is likely to continue, with petrol price declines expected to further push inflation lower by year-end. This easing of inflationary pressures provides the SARB with more room to manoeuvre and potentially implement further rate cuts.

The second quarter saw economic growth improve to 0.4%, slightly below expectations. While some sectors like mining and retail sales experienced setbacks, others like manufacturing and trade showed positive signs.

Encouragingly, business and consumer sentiment surveys have shown a marked improvement, suggesting a more optimistic outlook for the second half of the year. Lower interest rates and easing inflation are expected to boost household spending and stimulate economic activity, but the impact of political remains a concern.

All performance figures in ZAR unless otherwise stated.

The Iza Global Balanced Fund continued its strong momentum throughout Q3, remaining ahead of peers in the EAA Global Flex and ASISA Global MA categories.

Berkshire Hathaway remained a key performer, delivering solid returns during the quarter despite a slight pullback in September. The defensive characteristics of Berkshire helped the fund navigate periods of market uncertainty, particularly as rate cuts began to take effect. Additionally, the fund’s bond positions, such as the iShares Treasury Bond ETF, Gold and Rubrics Enhanced Yield, were critical in providing stability, with Rubrics Enhanced yielding a positive return of 0.48% in September and contributing throughout Q3 as rates began to decline. The consistent performance of these bonds underscored the fund’s resilience in a shifting rate environment.

The portfolio also made some proactive changes, with the gradual rotation out of Fundsmith (-0.57% in September) and into Guinness Global Equity Income Fund (up 0.22% in September). Guinness brings a strong history of consistent outperformance, particularly in markets characterized by stable rates, and focuses on quality stocks with growing dividends. This move aligns with the fund’s goal of maintaining exposure to high-quality companies while optimizing for stable and growing income streams.

Nomura Global High Conviction, which returned 0.48% in September, continued to add value over the quarter, bolstered by its quality-focused approach and the fact that the hedged GBP class was utilised to reduce impact of the weaker dollar. T. Rowe Price Global Focused Growth saw more muted results with a slight decline (-0.96% in September), reflecting broader challenges faced by growth stocks. Overall, the changes and additions to the balanced portfolio have set the fund up for further success as we move into Q4.

The Iza Global Equity Fund also had a strong quarter, finishing in the top quartile year-to-date vs peers and slightly ahead of the MSCI World for the month in September. While behind the MSCI year to date broadening in stock performance has been beneficial in Q3. The fund’s broader diversification, coupled with reduced concentration risk compared to market-cap-weighted indexes, allowed it to capture gains recently while mitigating downside risks during periods of volatility.

One of the most notable changes in the equity portfolio was the full exit of Smithson Investment Trust, which was replaced by the S&P Midcap 400 GARP ETF. The decision was made to shift into the GARP ETF, which focuses on midcap companies with growth at a reasonable price, avoiding the pitfalls of unprofitable or smaller companies that could face headwinds if rates do not decline as expected. This is also allow the Fund to capture a part of the market that lagged substantially and attractively priced.

In line with the fund’s strategy to capture growth while mitigating risks, a structured note replicating the MSCI World Index was introduced, replacing part of the iShares MSCI World ETF position. This structured note provides downside protection and exposure to defensive trend exposure while maintaining exposure to the performance of the MSCI World Index , allowing the fund to capture gains in a volatile market environment.

Berkshire Hathaway continued to be a core holding, returning 6.29% over the quarter and maintaining its role as a stabilizer in the portfolio. Meanwhile, Scottish Mortgage Investment Trust returned a modest 1.09% in September but faced challenges due to concerns about AI monetization and names like Nvidia not exceeding past expectations. With Scottish having made a significant recovery post its lows we used the opportunity to reduce and reallocate to T.Rowe , another high growth manager that we have utilised and done very well. The diversified nature of the portfolio allowed the fund to continue outperforming, with positions like Guinness Global Equity Income Fund.