2024 in Review
Last year was one of political upheaval and geopolitical tension, with key events shaping markets and influencing investment outcomes worldwide. Portfolio manager MIKE TOWNSHEND reviews the key investment events of 2024 and the performance of the Foord investment funds.
Arguably the most noteworthy event of last year was the remarkable comeback of Donald Trump. US share markets were immediately positive on the assumption that Trump’s pro-growth stance would stimulate the American economy. The dollar and Bitcoin were also major beneficiaries.
However, Trump’s unpredictability means that risks abound. If he becomes mired in cronyism, deports illegal immigrants en masse, persecutes his political enemies or engages in trade wars, his presidency could harm the global economy.
Ongoing military conflict, particularly in the Middle East, meant geopolitical risk remained high. Israel invaded Lebanon, the Hamas leadership was all but wiped out, Iranian President Ebrahim Raisi died in a helicopter crash and Syrian rebels took control of Damascus in December, bringing an abrupt end to the 53-year rule of the abhorrent Assad regime.
Further north, the seemingly intractable Russia/Ukraine war continued. Russia pounded Ukrainian infrastructure and eked out small territorial gains. Ukraine responded by invading the Kursk region. North Korea later dispatched troops to the front. While a quick Trump resolution to this conflict seems unlikely, it could have positive implications for markets.
In South Africa, the ANC lost its majority for the first time since the end of apartheid. Unusual for a liberation movement, the ANC accepted the result. It chose a Government of National Unity (GNU) over a coalition partnership. The GNU included the more reform-minded Democratic Alliance. This positive political development helped the rand hold its value against the US dollar in 2024, when most other currencies traded weaker against the mighty greenback.
As inflation eased, global central banks commenced interest rate cuts for the first time in years. The US Federal Reserve cut rates three times during the year, taking its main rate down to 4.5% by year end. Inflationary concerns resurfaced towards the end of the year, with the Fed signalling that it would drastically slow the pace of cuts in 2025. This caused consternation in markets, with equities and bonds both weakening at the tail end of the year. Developed economy bond markets were negative for the year.
Despite this, 2024 was optically a good year for equities. The index of global developed share markets rose 19% in US dollars. However, almost all this gain was attributed to US share markets, with the rest of the developed world effectively contributing nothing. The US S&P 500 Index rose by 23%, matching its 2023 performance. Once again, the Magnificent Seven group of tech giants outperformed — delivering over 60% for the year as a cohort. Chipmaker Nvidia, whose share price increased by 171%, vied with Apple and Microsoft for the title of world’s most valuable company.
In contrast, the Russell 2000 Index of smaller American companies delivered a more sedate 9%. The share market’s breadth — measured by the number of advancing shares vs the number of declining shares — was at its lowest annual level in at least 20 years. Japanese markets exceeded their 1990 bubble highs for the first time in 34 years. The Nikkei 225 gained 19%, much of it on double-digit yen weakness against the US dollar. Emerging markets lagged: advancing just 5% for the year, despite Chinese markets rallying 16.5%.
South Africa recorded a tepid 1% annual economic growth to the end of September. The outlook was nevertheless rosier as investors anticipated improved delivery from the GNU. Most asset classes delivered decent inflation-beating returns. The listed property sector was the standout, gaining 29%. Bonds delivered a decent 17%, JSE equities 13%, and cash just over 8% for the year.
Within SA equities, however, there was significant variation. The resources sector experienced yet another down year, contracting 9%. In contrast, the financial and industrial indices each delivered returns of around 20%. The index of small cap JSE-listed shares rose by a whopping 36%. This area of the market proved to be a happy hunting ground for the Foord investment team in 2024. Gold once again proved its resilience in difficult geopolitical circumstances, advancing 27% for the year. Most Foord funds benefited from a healthy exposure to this safe-haven asset.
The Foord global funds again maintained a conservative weight to the frothiest sectors of the market amidst the continued AI exuberance. The Foord Global Equity Fund lagged its US tech-heavy benchmark but still delivered double-digit returns. The Foord Asia ex-Japan Fund, however, outperformed its benchmark by nearly 5% last year. Within Asian markets, therefore, our stock selection was good. The conservative Foord International Fund was positioned for safety. In the event, overcaution and some unexpected detractors meant the fund sustained a small negative return. We are introspective at this outcome.
Bullish markets saw the Foord SA multi-asset funds all producing meaningful inflation-beating returns for the year. This was positive for the long-term savings outcomes of investors. However, the underwhelming performance of the Foord global funds resulted the funds lagging the peer group, which is less important to us than safely compounding inflation-beating returns. The Foord fixed income suite was in-line or ahead of their respective benchmarks for the year.
The Foord Equity Fund spectacularly outperformed its benchmark in 2024. The fund benefitted from its low weighting to the underperforming resources sector, and good stock picking within the lucrative small and mid-cap sectors. The fund was nearly 10% ahead of its benchmark last year. Over three years, the fund has beaten the benchmark by 5% per annum. We thank long-term investors for their patience in our equity strategy.
Looking ahead, early signals suggest that sticky inflation rates could surprise markets. We thus favour attractively priced investments with the ability to keep up with inflation. We continue to have a low weighting to sectors caught up in exuberance. While South African equity valuations are less attractive than they were before the elections, equities outside the US are cheap. There remain some decent-quality opportunities in the Chinese market for patient investors. Inflation-protected bonds and cash are preferred for fixed income exposure. Gold retains its appeal as a solid uncorrelated asset in an uncertain geopolitical environment. And while share market returns should moderate off a high base, we expect to again safely deliver inflation-beating returns for our investors in 2025.
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