Market update  

The equity market upturn continued over the month as the FTSE All-World Total Return USD Index climbed 4.2%, particularly as the semiconductor industry continued to display an unwavering level of resilience. In fact, on 22 February 2024, Nvidia registered the largest one-day gain in stock market value on record, surging US$277 billion in a day, amid better-than-expected earnings results.

While it is encouraging that the year-on-year disinflationary trend continues in the western world, the upside surprise to both headline and core US inflation data relative to Bloomberg expectations caused jitters in the bond market. The stark re-acceleration in the ISM Services Price Paid subcomponent, the stickiness in inflation expectations from the University of Michigan survey, as well as the surge in one-year breakeven inflation rates are concerning for where the overall level of inflation will settle at this time. Accordingly, the fed fund futures market continued to price out several rate cuts over the course of the month to just three this year, which is now in line with the US Federal Reserve’s forecasts. One noteworthy outcome of the Federal Open Market Committee’s (FOMC) minutes was that several members felt it will be prudent to initiate in-depth discussion around the reduction in the pace of the balance sheet runoff process, in light of the continued drawdown in the reverse repo account. We expect an announcement of a reduction in quantitative tightening at the next FOMC meeting in March.  

Intriguing developments ensued in Asian markets. Despite Japan entering a technical recession, the Nikkei 225 managed to hit record-highs in February, amid a continuation of unprecedented monetary policy support from the Bank of Japan. China registered a sharp rebound over the month as policies likely boosted market sentiment. These measures include restrictions on short selling and a much greater-than-anticipated rate cut in the five-year loan prime rate. This, coupled with some encouraging tourism statistics, may well set the tone for an economic recovery barring any further haphazard policy pronouncements.     

We await further clarity on the prospective compositional spend of the fiscus amid another stop-gap funding deal being invoked until early March. Given that it is an election year, fiscal spending may not necessarily follow the expected trajectory in March either.

Fund strategy

Investors are optimistic, particularly in the US, pricing in a robust earnings recovery in the S&P 500 this year and next. Moreover, several research houses are also starting to lift year-end price targets. While this is certainly welcomed, we remain positioned in selected opportunities within our internal equity building blocks consisting primarily of Ashburton’s Global Leaders and Global Equity Growth Funds. Themes such as the emergence of Artificial Intelligence (AI) and the potential recovery in China are on our radar.

Our position in Nvidia has had an exemplary run this year as part of a core holding in both our Ashburton Global Leaders Fund and Global Equity Growth Fund. We are delighted that it delivered yet another better-than-expected earnings update and it remains the best performing share on the S&P 500 this year. Despite the continued upturn in the share price, several operating metrics such as profit continue to increase at a faster pace making valuation metrics even cheaper. The Global Equity Team believes that there remains a long runway for growth because of the demand for the AI chips that Nvidia designs. 

China has displayed nascent evidence of a rebound in equity market performance recently. We remain encouraged by the front-loading of policy supportive measures at the beginning of this year. Overall, multiples are generally low in the country and international investors are generally very underweight in the region. We remain cautious with our asset allocation sizing toward China but are aware that both investor positioning and multiples historically change rapidly once confidence returns.

This year will be another huge year for geopolitics, with a record number of elections being held globally. Inflation remains among the most important variables for investors to watch, given it tends to drive the central banks’ decisionmakers who raise or lower global liquidity levels, which affect investment markets. Overall, we continue to look for reasonably priced, high-quality companies that are compounding their intrinsic value.

The Fed have signalled their intent to slash the federal funds rate in the coming months amid the disinflationary impulse registered more recently. We are encouraged that the implied policy rate path from the futures market is moving closer to the Fed’s dot plot. The labour market remains tight and is some distance from what would likely create a scenario of deep rate cuts in the coming months. We maintain some allocation to T-bills as they remain attractive with a yield north of 5% compared to most sovereign bond curves and remain cautious of the overall level of duration in the multi-asset funds. 

Fund performance

The USD Global Growth Fund climbed 3.1%[1] while the USD Global Balanced Fund increased 1.8% compared to its Morningstar peers which increased 2.3% and 1.2% respectively. The higher equity allocation combined with an underweight to fixed income added value over the month. Stark outperformance in one of our primary equity building blocks, the Global Equity Growth Fund, contributed meaningfully as the fund registered strong performance from AI holdings like Nvidia. We are encouraged by the futures market moving closer to the amount of cuts the US Fed have articulated in their own dot plot but remain cautious about where the level of inflation will settle in the coming months. We prefer to have alternative exposure to a beta neutral long/short fund as a diversifier at this time, which has meaningfully outperformed fixed income. 

Disclaimer

Waystone Management Company (Lux) S.A. is regulated by the Commission de Surveillance du Secteur Financier (CSSF) (ref A00000395 & S00000734), Waystone Management Company (Lux) S.A. is a company located in Luxembourg, L-1273 Luxembourg at 19, Rue de Bitbourg. This document is Issued by Ashburton Fund Managers (Pty) Limited (The Investment Manager) authorised financial services provider (FSP number 40169), registered with the Financial Sector Conduct Authority (FSCA). In South Africa, the Fund(s) is/are approved for promotion under section 65 of the Collective Investment Schemes Control Act 2002. The Fund Prospectus, and further information including pricing and changes, may be viewed at the Fund’s representative office in South Africa: Ashburton Management Company (RF) Proprietary Limited (“Ashburton CIS”), of the same address. Ashburton CIS is an approved collective investment schemes manager regulated by the Financial Sector Conduct Authority and a full member of the Association of Saving and Investments South Africa. In the event a potential investor requires material risks disclosures for the foreign securities included in a portfolio, the manager will upon request provide such potential investor with a document, outlining potential constraints on liquidity & repatriation of funds; Macroeconomics risk; Political risk; Foreign Exchange risk; Tax risk; Settlement risk; and Potential limitations on the availability of market information. The value of participatory interests and the income from them may go down as well as up and is not guaranteed. Past performance is not necessarily a guide to the future performance. Where an investment involves exposure to a currency other than that in which it is denominated, changes in rates of exchange may cause the value of the investment to go up or down. CIS portfolios are traded at ruling prices and can engage in borrowing and scrip lending. A full detailed schedule of fees, charges and commissions is available from Ashburton on request and incentives may be paid and if so, would be included in the overall costs. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The manager has a right to close the portfolio to new investors in order to manage the portfolio more efficiently in accordance with its mandate. This is a marketing communication. Additional information about this product, can be obtained from the Manager, free of charge, and from the website: www.ashburtoninvestments.com.