The market’s advance came amid moderating inflation and signs that the US economy remains resilient in spite of higher interest rates. The Federal Reserve (Fed) raised interest rates by 25 basis points (bps) in May. However, it did not hike rates in June, adopting what economists have termed a “hawkish pause”. The “dot plot” of rate predictions indicated two further rate rises in 2023. Markets are locking in a rate hike at the upcoming July meeting with 40% odds for an additional quarter-point hike to follow. US inflation (as measured by CPI) declined to 0.1% (month-on-month) in May, easing from a 0.4% increase in April amid a continued decline in the cost of energy. This brought down the annual rate to 4.0%, below expectations of 4.1%.

US Q1 GDP was revised notably higher to 2% from 1.3%, reflecting upward revisions to exports and consumer spending. Consumer confidence increased to its highest level since the start of 2022, which could be attributed to the resilient labor market and softening inflation. The unemployment rate (May) remains near generational lows, and the latest reading showed increasing residential construction payrolls. Inflation is softening, as evidenced by core CPI and PPI; however, the Fed’s preferred measure, core PCE, has remained elevated.

Markets are seemingly pricing in a more optimistic economic outlook than what many media and market pundits have been reporting and forecasting. Record index performance, improving market breadth, new highs in industrials and homebuilders, resilient economic data, softening inflation, improving 2H corporate earnings, and an AI revolution may combined suggest that one of the most widely anticipated recessions may not be in the cards this year after all. Consumer confidence increased to its highest level since the start of 2022, which could be attributed to the resilient labour market and softening inflation. Overall, the US economy more broadly remains in good health.

UK equities fell over the quarter. The large UK-quoted diversified energy and basic materials groups were the most significant detractors amid broad-based weakness in commodity prices and concerns over the outlook for the Chinese economy. A number of domestically focused areas of the market also underperformed as the Bank of England (BoE) raised rates twice – in May and June. The 0.5 percentage points (pp) increase in June represented a reacceleration in rate hikes after an initial decision to slow the pace in March to 0.25 pp increments.

South African equities followed a global trend in June 2023 due to improved global risk sentiment and the easing of power cuts in recent weeks. The JSE All Share Index recorded 1.3% in June 2023 and is up 5.9% YTD. The FTSE/JSE Capped SWIX gained 3.8% in June. This was mainly due to the change in the power utility’s management structure. Over the short term, the JSE ALSI soared to double-digit returns due to reduced tensions between South Africa and the West in respect to Russian relations. Local markets were supported by the financial and industrial sectors, while resources detracted due to China’s bumpy economic recovery. South African bonds outperformed South African equities, with the All-Bond Index (ALBI) rebounding by 4.6% in June 2023. South Africa’s latest inflation data for May fell for the second consecutive month (6.3% YoY), coming in below expectations, while the core inflation basket (5.2% YoY) also saw price gains slow slightly. Inflation remains above the South African Reserve Bank’s 4.5% target, and investors anticipate that the SARB will need to increase rates by 0.50% over the next few months as it continues to fight inflation. The rand rallied by 4.4% relative to the USD in June 2023. SA’s 10-year government bond yield fell by 0.7% during June, leaving it at 11.8% at the end of June.

All performance figures in ZAR unless otherwise stated.

The Iza Global Equity Fund rose by 1,30% (GBP) & 3,43% (USD) in June. While the Iza Global Balanced Fund gained 0,75% (GBP) & 2,85% (USD) for the month. The Stable Model Portfolio gained -0,01% (GBP) for the month.

As we continue to evaluate and monitor the risks in our portfolio, we have made a few changes over the past few months. These changes have been made in order to mitigate risk, improve diversification, and align our portfolio with our investment strategy. We have started a new position in the Nomura Global High Conviction Fund. We are selling a portion of the Fundsmith Equity Fund to introduce Nomura. The reasoning behind this is to mitigate and limit the risk of having a substantial weighting to one manager. We will be reducing our weighting in the Scottish Mortgage Investment Trust and introducing the T.Rowe Global Focused Growth Equity Fund and the MSCI World ETF. The rationale in reducing Scottish Mortgage is to diversify our exposure to growth stocks and increase our beta to the market. We have also increased our weighting in the Rubrics Enhanced Yield Fund. We believe that interest rates are nearing the end of their upward cycle, and we see the potential for attractive returns from this allocation. We are selling our entire holding in Liontrust as we believe that Liontrust’s investment strategy is no longer aligned with our own. The proceeds from the sale will be allocated to T.Rowe and the MSCI World ETF. In the past months we have introducd a position in Berkshire Hathaway and Dodge & Cox. These additions have added great value to our fund as they were the top contributors in June. We have sold out of BH Macro. The timing of the sale was on our side as it declined by 9,70% over the last month. The changes to our portfolios will be implemented gradually to mitigate risk. Looking ahead we continue to believe in the long-term investment strategies of Fundsmith and Scottish Mortgage Investment Trust, and we believe that these investments will outperform over the long term and continue to add great value to our portfolios.