A Year in Review - Destiny Investments 2019

“ If there’s one thing certain about Markets, it’s uncertainty.”

- Forbes 2014 -

The year 2019 brought much-needed relief for investors. Returns across most asset classes were ahead or in line with expected outcomes and the Destiny Portfolios benefited from strong outperformance by most underlying managers across local, emerging and developed markets, in a year that started off with talk of a global economic recession, a trade war between China and the US, a local economy that struggled to keep the lights on and one which was under the constant watchful eye of Moody’s Ratings Agency.

WHAT WORKED IN 2019?

The key performance attributor for the Destiny Portfolios in the year were Mining and Resources stocks. Tightness in the supply of the Platinum Group Metals (PGMs) was confirmed in 2019 with the four PGM miners (Amplats, Impala, Sibanye and Northam) all up significantly.

Multiple rate cuts from the US Federal Reserve in response to global softening further fueled the rally in gold. These macro tail winds have resulted in a very supportive metal price, benefiting South Africa’s gold equities.

In contrast to South Africa’s growth rate, the global economy is close to completing its 10th consecutive year of more than 3% growth, bond yields are near multi-year lows and the US is entering a record 11th year of expansion.

Tech was a major winner in 2019 and the world’s top largest listed companies are now US technology firms. Together they make up 16% of the S&P 500 market value and contributed around 15% to the performance of the US market over the past five years.

To crown 2019, South Africa put economic woes aside to celebrate the Springboks when Siya Kolisi captained his team to victory in the Rugby World Cup. Yet again, sport united South Africans as a nation.

WHAT DIDN’T WORK IN 2019?

South Africa’s growth rate stagnated with Eskom’s unmanageable debt and high operating costs being the biggest risk to the economy. SA Inc. stocks, from retailers and leisure providers to industrial and construction counters experienced another dismal year as consumer confidence dribbled lower and policy uncertainty prevailed.

Global market volatility was dominated by President Trump’s continued resolve to refuse to let go of trade issues with China. In the year ahead volatility among trade and investment dependent companies is likely to remain elevated with returns contingent on political choices.

LOCAL SHARE PERFORMANCE

TRENDING TOPICS WITHIN THE RETIREMENT REGULATORY ENVIRONMENT

PRESCRIBED ASSETS

A contentious item in the ANC’s 2019 manifesto speaks of investing in a new framework to mobilise funds for “social productive investments, including housing, infrastructure for social and economic development and township and village economy and job creation”.

On the surface, all seems rather benign and almost gentle in implementation, however as one begins to speculate or tries to fathom how this could be achieved, one mechanism comes to mind, that being “Prescribed Assets”. This concept will once again force pension funds or financial institutions to buy specific assets, decided by government, similar to the laws levied by the apartheid government.

Although currently, many pension funds or financial institutions do invest in state-owned enterprises, there is a substantial difference between investing in government-guaranteed bonds, which offer excellent income for many years, and forcing investors to invest into inefficient and deeply indebted SOEs such as Eskom and SAA.

SUSTAINABLE INVESTING

GIB believes that an essential attribute of a quality asset manager is its ability to consider any aspects that may affect the sustainability of an investment such as those of an ESG (Environmental, Social and Governance) nature. We believe we can better attain our objective of achieving sustainable and responsible investment outcomes when ESG factors are considered in an asset manager’s investment process.

INTRODUCTION OF THE DESTINY PASSIVE RANGE

The Destiny Passive Range was introduced in the second half of 2019 on the Destiny Retail Product Platform, created in the image of the traditional Blended Range for those particular investors who are content with achieving the benchmark. These portfolios are primarily constructed from the tried and tested underlying indices that the traditional Destiny Portfolios have been combining with active managers for well over a decade. The passive portfolios will soon be available on the Destiny Institutional Platform.

DESTINY PORTFOLIO CHANGES IN 2019

GIB maintains the investment philosophy of investing in a combination of large, medium and smaller managers, as different sized managers have the ability to benefit from different market opportunities, including the ability to shift positions quickly. In the first half of 2019, the Investment Committee removed Foord Asset Management and re-allocated their funds to Laurium Capital and Independent Securities .

The Committee has always believed in providing quality asset management at the right cost and has managed to materially reduce the overall costs of the Destiny Portfolios by replacing the Old Mutual SWIX and Old Mutual ALPI passive allocations with the Momentum CAPI and Momentum ALPI Indices respectively.

IN CONCLUSION

Notwithstanding the challenging environment where many a discouraged investor fled growth-type assets and looked to cash for safety, the Destiny Portfolios, which invest across multiple asset classes, performed with double digit returns across all portfolios for the year.

GIB is optimistic about the positioning of the Destiny Portfolios going into 2020. We expect to see accommodative policy from government benefiting risk assets which would be positive for some of the underlying local equity asset managers’ positions. We remain constructive on South Africa in the longer term and believe that reform will take its course.