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06 Sep 2021

Markets in a nutshell — August 2021

Global equities rose for the seventh straight month as corporate earnings again delivered ahead of expectations, especially in the US. US employment gains and Fed Chair Powell’s commitment that interest rates would not soon rise despite the high likelihood of bond purchase tapering before year end, further supported markets. The bullish sentiment persisted despite slowing global economic growth and growing uncertainties around new COVID-19 variants. Emerging market equities recovered after their precipitous July fall, led by Indian bourses on improved investor sentiment.

Developed market bond yields were little changed in the month. The Fed continues to walk a fine monetary policy line, balancing clear improvements in underlying economic growth against rising inflation and concerns about the delta variant. The US dollar strengthened modestly against the major crosses despite the Fed’s dovish tone.

Industrial commodities iron ore, oil and copper fell after a massive run up over the last year, weighed by worries for slowing economic growth. Precious metals platinum, palladium and silver also gave up some recent gains while safe-haven gold was flat.

In the Foord International Fund, UK electricity and transmission utility SSE Plc and US lithium miner Livent contributed meaningfully to performance. US agricultural chemicals manufacturer FMC Corp and the US S&P 500 market index hedges detracted most from the fund’s performance.

The Foord Global Equity Fund lagged the index, driven primarily by the fund’s Chinese technology and materials sector holdings as negative short-term sentiment gripped Chinese equities. In our view, Chinese tech names present exceptional long-term value as they trade at deep discounts to their long-term earnings fundamentals.

The FTSE/JSE Capped All Share Index fell on sharply lower resources and industrials, largely offset by a surging financials sector. The Foord Equity Fund outperformed the market index. The underweight allocation to precious metals miners and good stock selection in industrials and financials continued to provide tailwinds.

The full weight to foreign assets detracted from performance in Foord’s multi-asset funds given headwinds in the global portfolios and rand strength at month end. The SA component of the funds nevertheless outperformed given the zero weight to underperforming platinum and gold miners. Investments in FirstRand, Standard Bank and Aspen rallied. Naspers detracted on the Chinese IT regulatory crackdown while Richemont also fell on negative China sentiment.

The portfolios’ SA bonds advanced again on a combination of attractively high interest coupon payments and flattening of the yield curve. Long bonds outperformed as yields fell on a better debt/GDP ratio and positive sentiment towards high yielding global emerging market bonds.

The rand was under pressure early in the month on broad-based dollar strength as markets [incorrectly] expected the US Federal Reserve would signal the timing of its next interest rate rising cycle. The currency later recovered on improved debt/GDP and fiscal deficit ratios after Stats SA estimated SA GDP to be 11% larger than previously reported.

The Foord funds have a meaningful allocation to real growth assets with long-term pricing power, given the increasing risk of rising inflation in the years ahead. This is carefully balanced by high levels of liquidity and some embedded optionality given the elevated potential for nearer term market volatility. The funds are well positioned to protect investor capital and deliver meaningful real returns over the full investment cycle.

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