Markets in a nutshell — September 2021
Another eventful month in global markets, another modicum of time in the stewardship of investments. This month Foord celebrates 40 years in business and we thank all our investors for their loyalty over the years. As the months roll into quarters, years and decades, we are reminded that in long-term investing there is no start and there is no finish. We look forward to another 40 years and more of unwavering investment stewardship.
This month, global equities fell after seven straight months of gains. Slowing global economic growth amid growing uncertainties around new COVID-19 variants, Evergrande contagion, energy supply issues in Europe and China and global supply chain difficulties giving rise to higher inflation all dampened enthusiasm.
Developed market bond yields rose on worries that rising global inflation may not be as transitory as first believed. While Fed Chairman Powell continues to walk a fine monetary policy line, it is becoming increasingly probable the US Fed will begin its bond tapering program within the next two months and we continue to expect a lift-off in rates sometime in 2022. The US dollar advanced strongly against the other majors, with investors now more actively positioning for a moderation of the prevailing accommodative US monetary policy and the subsequent rise in interest rates.
Industrial commodities iron ore and copper fell on concerns of a slowdown in Chinese economic growth, compounded by Chinese power supply constraints as oil, gas and coal rose sharply as alternatives. Precious metals platinum, palladium, silver and gold moved lower on US dollar strength—with palladium impacted by continued auto production problems.
Foreign assets detracted marginally as the fall in global equities was offset by rand weakness. Foord International Fund’s US S&P 500 market index hedges protected investor capital, while copper miner Freeport-McMoRan and gold streamer Wheaton Precious Metals detracted. The Foord Global Equity Fund’s Chinese holdings, communication services and discretionary sector holdings were the primary drivers of the fund’s relative underperformance this month as negative short-term sentiment continued to grip Chinese equities. In our view, these businesses present exceptional long-term value as they trade at deep discounts to their long-term earnings fundamentals.
In South Africa, the FTSE/JSE Capped All Share Index was dragged lower by resources with industrials also negative. Financials were pulled up by select banks and life insurance companies. There was strong outperformance in South African equities, driven by the meaningful overweight investment in healthcare and the low relative weight to cyclical resources counters. The longstanding investment in Aspen rose sharply as the company continued to re-rate from an oversold position. Stock selection in the SA Inc. cohort continued to add value with quality mid-cap companies Omnia, Spurcorp and Metair all outperforming. BHP Group was the largest detractor in absolute terms.
The All Bond Index fell as yields across the curve moved higher in line with rising global bond yields. The core holding in the short and medium-term sector outperformed as longer dated maturities suffered steeper losses.
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.