UK equities rose, with the FTSE 100 achieving fresh all-time highs. Small and mid-sized companies saw a flurry of new bids, driven by expectations of a potential turning point for domestically focused companies. Despite encouraging inflation trends, the Bank of England maintained its base interest rate at 5.25%, amid concerns about high wage inflation. Prime Minister Rishi Sunak’s call for a general election added to the market’s focus on political developments.

Having suffered a mild recession over the second half of 2023, it was confirmed the UK economy rebounded strongly in the first quarter of 2024, recording GDP growth of 0.7%. However, more recent data revealed growth had stagnated in April, with the three-month unemployment rate (to April) rising to 4.4% as the economy shed 140,000 jobs. Despite slowing UK growth and encouraging inflation trends, the BoE maintained base interest rates at 5.25%, amid concerns that the fall in UK inflation may only be temporary, driven by high wage inflation in services, which was 5.7% in May.

Emerging market equities outperformed their developed counterparts, delivering quarterly returns of 5.1%. Strength in Asian markets, particularly in Taiwan and China, contributed significantly to this performance. Moves by Chinese authorities to support the real estate sector and strong AI-related stock performance in Taiwan helped Asia ex-Japan equities achieve a 7.3% return. Despite lacklustre returns in Latin America, the overall emerging market performance was robust.

South Africa was another top performer, as investors welcomed the results of the country’s general elections which saw the African National Congress Party and Democratic Alliance, along with a number of smaller parties, form a coalition “Government of National Unity”. Meanwhile, markets like Korea and some energy-related markets such as Kuwait, UAE, Colombia, and Saudi Arabia underperformed, with Brazil and Mexico posting the biggest losses in US dollar terms.

The quarter commenced on a disappointing note for global bond markets, spurred by renewed concerns about US inflation causing investors to reassess the timing of interest rate cuts. Later, a more conducive market environment was driven by the emergence of softer labor market conditions and encouraging news on inflation. Political risk drove idiosyncratic weakness across certain emerging markets. Additionally, the announcement of snap parliamentary elections in France instigated localized weakness, whereas the prospect of UK elections was less contentious.

High yield (HY) markets enjoyed another positive quarter, with strong outperformance over both government bonds and investment grade corporates. Global government bond markets diverged during the quarter. Following an initial sharp sell-off in US Treasuries, yields peaked towards the end of April and subsequently trended lower. Central banks were firmly in the spotlight, with the Federal Reserve striking a relatively hawkish tone and the European Central Bank announcing a 25bps cut in June. Meanwhile, the Bank of England’s decision to keep interest rates unchanged was dubbed as “finely balanced”.

South Africa was another top performer, as investors welcomed the results of the country’s general elections which saw the African National Congress Party and Democratic Alliance, along with a number of smaller parties, form a coalition “Government of National Unity”. Meanwhile, markets like Korea and some energy-related markets such as Kuwait, UAE, Colombia, and Saudi Arabia underperformed, with Brazil and Mexico posting the biggest losses in US dollar terms.

The quarter commenced on a disappointing note for global bond markets, spurred by renewed concerns about US inflation causing investors to reassess the timing of interest rate cuts. Later, a more conducive market environment was driven by the emergence of softer labor market conditions and encouraging news on inflation. Political risk drove idiosyncratic weakness across certain emerging markets. Additionally, the announcement of snap parliamentary elections in France instigated localized weakness, whereas the prospect of UK elections was less contentious.

High yield (HY) markets enjoyed another positive quarter, with strong outperformance over both government bonds and investment grade corporates. Global government bond markets diverged during the quarter. Following an initial sharp sell-off in US Treasuries, yields peaked towards the end of April and subsequently trended lower. Central banks were firmly in the spotlight, with the Federal Reserve striking a relatively hawkish tone and the European Central Bank announcing a 25bps cut in June. Meanwhile, the Bank of England’s decision to keep interest rates unchanged was dubbed as “finely balanced”.

The second quarter of 2024 continued to build on the successes of the first, with both the Iza Global Balanced and Iza Global Equity Funds delivering strong positive performances. The favorable market environment, characterized by lower bond yields and a continued downtrend in CPI, benefitted the growth and quality managers within the portfolios. The funds’ performance placed the Iza Global Balanced Fund in the top quartile of the GBP EAA Global Flex category both for the month and year-to-date, and within the top 30% of the ASISA Global MA category. Meanwhile, the Iza Global Equity Fund snuck ahead of the MSCI World Index in June but is still behind year-to-date.

Nomura was the best performing fund for the quarter, up nearly 6%, significantly outpacing the MSCI World Index’s 2.5% gain. T. Rowe Price closely followed, posting over 4% returns. These standout performances were instrumental in driving the overall positive returns of both funds. The strategic decision to reduce allocations in Fundsmith and Scottish Mortgage in favor of T. Rowe Price and Nomura has proven to be prudent, effectively diversifying manager risk while maintaining robust returns.

In the Iza Global Balanced Fund, bonds ended the quarter roughly flat but were maintained as a strategic position to earn higher yields while providing protection against a possible recession. Should the Federal Reserve overstay its welcome and keep rates too high for too long, bonds are well-positioned to buffer against this potential economic slowdown. Gold was the biggest contributor, up over 4% for the quarter, highlighting its role as a reliable diversifier in the portfolio. Value names like Dodge & Cox and Berkshire Hathaway were slight detractors, mirroring broader market trends where the value space lagged.

Similarly, in the Iza Global Equity Fund, Dodge & Cox and Berkshire Hathaway were detractors alongside Fundsmith, whose slight negative print for the quarter was disappointing. The performance of Fundsmith further supports our proactive decision last year to meaningfully reduce exposure and rotate into Nomura. Additionally, Smithson lagged in the equity fund due to small and mid-cap headwinds. Small and mid-cap stocks are currently trading at their cheapest relative to large caps in over five decades, indicating potential for a strong recovery when rates come down and sentiment shifts.Despite the recent outperformance in June, the Iza Global Equity Fund remains slightly behind the MSCI World Index year-to-date. This lag is largely due to the high concentration in performance of major indexes, which have seen unprecedented concentration in US large caps. We remain hesitant to chase yesterday’s winners, as we already have more prudent weightings to each, ensuring that the fund’s portfolio remains diversified and resilient. The fund was ahead by 2% for Q2 and 1.5% YTD vs global equity peers (ASISA Global Eq General ).

Both the Iza Global Balanced and Iza Global Equity Funds are wellpositioned to capture positive rotations and the recovery of stocks poised to play catch-up. Their exposure to quality growth managers like T. Rowe Price and Nomura ensures resilience, while the strategic diversification away from Fundsmith and Scottish Mortgage has reduced manager risk. Bonds added upside in the balanced fund, with gold being the biggest contributor, further emphasizing its role as a key diversifier.

The Iza Global Balanced and Iza Global Equity Funds’ strategic positioning allows them to benefit from both large-cap growth stocks and sectors poised for recovery. This ensures that they can continue to deliver strong returns to investors, supported by a prudent blend of growth, quality, and value investments.

Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.

Peter Lynch