Economic data in the US revealed some signs of moderation, with indicators like capital spending and home sales plateauing. However, a bright spot emerged in the form of flash Purchasing Managers’ Index (PMI) data, which pointed towards continued growth in both manufacturing and services sectors. US equities capitalized on this positive sentiment, rebounding with 5.0% returns in May, supported by strong first-quarter earnings reports. European PMI data confirmed an improving economic picture, with the services sector acting as a key driver. First-quarter GDP growth met expectations, and corporate profits exceeded forecasts. This reacceleration, coupled with relatively attractive valuations, is attracting international investors to European markets. European equities (excluding the UK) returned a healthy 3.6% in May, while UK equities lagged behind at 2.4%. Signs of improvement emerged across Asian economies, although the picture is not entirely clear. China’s data surprised on the upside, coinciding with a rebound in its equity market. However, the sustainability of this rally hinges on a revival in domestic demand, which currently remains sluggish. Japan, heavily reliant on exports, saw its equity market underperform regionally in May (1.2% return) due to the weakening yen, which while typically positive for exports, is now starting to weigh on consumer confidence. In commodities , the S&P GSCI experienced a decline, with notable differences across its various components. Energy and livestock were the weakest performers, while agriculture, industrial metals, and precious metal gained. Both crude oil and Brent crude fell during the month, reflecting broader market concerns.

Heating oil and gasoil also recorded declines, contributing to the overall weakness in the energy sector. All sub-components of industrial metals ended the month positively, buoyed by strong industrial demand and supply chain improvements. Silver prices advanced strongly, benefiting from its dual role as both an industrial metal and a safe-haven asset. The price gain for gold was more modest, reflecting a stable but cautious investment environment. The divergence in monetary policy, coupled with uncertainty around the future path of interest rates, is likely to create volatility in government bond markets. However, the recent yield reset has restored the value proposition of bonds within a portfolio, offering both income and diversification benefits. Solid corporate fundamentals have helped keep credit spreads in check. Investment grade credit was a strong performer in May, while emerging market debt (EM) also generated positive returns (1.8%) as several EM central banks have already begun easing monetary policy. Overall, economic data in May has tempered concerns about overheating in the US and highlighted a rebalancing of economic momentum across regions. Corporate fundamentals remain robust, and interest rates are still likely to trend downwards in most Western economies, albeit at different paces. These factors should continue to support risk asset valuations. However, the hunt for attractive growth opportunities and valuations is starting to shift investor focus away from the US and towards more regionally diversified portfolios, where the potential for catch-up appears greater.

Developed market equities rebounded from their sell-off in April, delivering 3.8% in aggregate with most regions in this basket now reaching all-time highs. Emerging market equities lagged their developed market counterparts, although South Africa’s FTSE/JSE All Share Index fared quite well, gaining 1% in May and 4.5% over the last 2 months in US$ which is well ahead of many developed markets. Much of the exuberance that has buoyed the local market in the last 2 months rested on BHP Biliton’s bid for Anglo American which although failed, has unlocked a major discount that Anglo traded at relative to its peers. Furthermore, appetite for companies with major exposure to China like Naspers/Prosus have been key drivers, as have the platinum producers like Impala (now well off their lows seen in the first quarter). On the backfoot and major detractors have been the likes of MTN, Sasol, many of the retailers and certain financials.

SA bond yields followed their global peers, falling by 35bps during the first three weeks of the month before retracing and ending the month 7bps higher than it started. Notably, volatility in domestic bonds spiked in the two days following the election with the 10yr yield trading in a 40bps range – a pattern we expect to continue until a new government is formed. Inflation-linked bonds (-0.8%) were the worst performing domestic asset class in May as declining inflation and fiscal uncertainty keeps the asset class out of favour.

The South African Listed Property Index gained 1.6% in the first three weeks of the month but gave back most of those gains by the end of May. Vukile and Newriver REIT each expressed interest in acquiring Growthpoint subsidiary Capital and Regional during the month. Having withdrawn this interest, Growthpoint gave back most of these gains (returning just 0.5%) for the month, while Vukile ended the month down 3.2%.

The SARB’s latest MPC meeting was overshadowed by the election, but the committee ultimately maintained the repo rate at 8.25% for the sixth consecutive session, reflecting consensus expectations with a unanimous decision. For the first time since March 2021, the SARB’s statement suggests a balanced risk outlook for inflation, moving away from the previously anticipated upside risks. This shift indicates reduced concern about rising food inflation, introducing a slightly more dovish tone to their statement. However, the SARB emphasized the urgency of achieving their inflation target to manage high inflation expectations effectively, stating the necessity of meeting targets promptly to stabilize these expectations.

All performance figures in ZAR unless otherwise stated.

In May 2024, the Iza Global Balanced and Iza Global Equity Funds demonstrated notable resilience amidst fluctuating market conditions, reflecting their strategic asset allocations and robust management. The Iza Global Balanced Fund excelled, finishing in the top 5% within the ASISA Global MA Flexible category and maintaining a top quartile position year-to-date in both the ASISA and the EAA Global Flexible categories. This performance is particularly commendable given the broader market dynamics and indicates a well-diversified portfolio that leverages various asset classes effectively.

Conversely, the Iza Global Equity Fund, while slightly trailing the MSCI World Index year-to-date, still outperformed the majority of its Global Equity peers, securing a position in the top two quartiles. The fund’s slight underweight position in high-flying stocks like Nvidia, which surged to over $3 trillion in market cap, was a significant strategic decision reflecting prudent risk management despite the potential short-term opportunity cost. However, key holdings like Scottish Mortgage and Dodge & Cox, spanning the growth and value spectrum respectively, contributed positively, underscoring the fund’s broad-based approach to capturing market gains. May’s market landscape was marked by a rebound in risk assets, spurred by growing investor optimism about the global economic outlook and anticipations of falling interest rates, which generally favour growth-oriented investments. This environment benefited the equity holdings in the Iza Funds, particularly as sectors like technology experienced substantial rallies. Moreover, the decision to hedge GBP exposure against the USD provided an additional tailwind as the dollar weakened by more than 2% over the month, enhancing the relative performance of international investments when measured in GBP terms.

Looking ahead, the Iza Funds are well-positioned to navigate the anticipated shifts in global economic policies and market conditions. The diversification across growth and value stocks, coupled with strategic currency hedging, provides a robust framework to capitalize on opportunities and mitigate risks. With central banks exhibiting divergent policy directions, particularly with the ECB hinting at rate cuts and the Fed taking a more cautious approach, the ability to adapt to changing economic signals will be crucial. Moreover, the ongoing contributions from holdings like Scottish Mortgage and Dodge & Cox illustrate the potential for continued outperformance through strategic stock selection and active management. As the global economic landscape evolves, the Iza Funds’ disciplined investment approach will continue to play a critical role in achieving sustained returns for their investors.