Market Commentary: Q4 2010

During December 2010 the National Treasury announced a 5% increase in the maximum limit Retirement Funds are allowed to invest offshore. The limit now stands at 25%, with an additional 5% available to invest in Africa. This relaxation of exchange controls forms part of governments’ effort to combat the effects of the strong Rand on the economy.
Locally year-on-year inflation continued to increase. The increase in inflation is being mirrored offshore, where Euro-area inflation is also increasing. A major factor in the trend of increasing global inflation is the rise of food prices globally. An index compiled by the UN of world food prices shows that food prices have exceeded their previous highs in June 2008, which was the start of the global financial crisis.
During 2010 the MCP drastically reduced interest rates, cutting prime rates to its lowest in over 35 years. One of the main reasons for these cuts was to stimulate the economy, but the effect has been hampered by a strong Rand relative to the Dollar. Over the 2010 calendar year, the Rand appreciated by 10.6% against the US Dollar.
Gold increased to US$1421.4 per ounce at the end of the year, whilst the oil price ended on US$94.75 per barrel for the year.
Equities
The All Share Index performed strongly over 2010, returning 19.0%. This return was, however, only generated over the last four months of the year. Industrials were the strongest performing sector in 2010, returning 24.0%. Resources were the worst performing sector in 2010, returning 12.3%, whilst Financials returned 16.5% for the year. Globally, the performance of the MSCI in Rand terms has been hampered by the strength of the Rand against the US Dollar, returning 0.5% over the year, compared to 12.3% in US Dollar terms.
Bonds
The All Bond Index returned 15.0% over 2010, experiencing only two negative months in May 2010 (-0.4%) and November 2010 (-2.0%). This represents a significant turnaround from the weak performance experienced in 2009, where the All Bond Index returned -1.0%.
Currency
Despite the relaxation of exchange controls in December 2010, the Rand continued to appreciate at the end of the year. Levels under R7 to the dollar were seen during the year and it remains unclear if the relaxation of exchange controls will have an effect on the strong Rand. The Rand ended the year at R6.62 to the dollar.

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Investment Consulting

The investment performance of a retirement fund is the most important driver of benefits in a defined contribution environment. We advise on what vehicles are suited to the fund and on the selection of managers. We monitor performance and ensure all investment decisions are in the best interest of the members.

We assist with the investment process by following a systematic process:

Customised investment training for trustees.
Development of the Investment Policy Statement.
The review and selection of investment managers.
Assistance with member communication.
Monthly and quarterly monitoring services.
Attendance and advice at trustee meetings.
Expert input on any investment issues.
Research of different funds, local and international managers and multi-managers, hedge funds and structured products.

People

Sara Herbert

Principal Consultant

Hildegard Wilson

Consultant

Chinell Lehmann

Investments Specialist

Yolé Ras