BY PORTIA NKANI
The first quarter of the year continued to show some signs of a recovery in the local equity market as the Domestic Companies Total Return Index (DCTRI) appreciated, while the Domestic Companies Index (DCI) also appreciated after another positive movement during the final quarter of 2018.
DCTRI appreciated by 1.047 percent while the DCI appreciated by 0.43 percent.
It however shows, “the price growth was concentrated in three stocks; FNBB which appreciated by 4.08 percent while Sechaba and BancABC appreciated by 2.50 percent each. The rest of the market continued to face price pressures.”
The BIFM Local Equity Unit Trust Fund on the other appreciated by 1.42 percent over the fourth quarter, outperforming the benchmark DCI return of 1.07 percent by 0.35 percent. Over a 12-month horizon, the fund, although reporting a decline of 2.71 percent, achieved a 0.51 percent outperformance over the benchmark’s decline of 3.23 percent.
“On the global front, offshore markets rebounded in the first quarter of 2019 led by the US-domiciled growth stocks that retreated sharply at the end of 2018. This created a difficult environment for value stocks such as banks which suffered the double impact of low growth and low yields,” it shows. This turnaround, however, was enough to recoup the bulk of losses sustained in the final months of last year.
Ending December 2018, the Bifm Local Equity Fund was affected by the large holding in Letshego, whose share price fell by 10.5 percent during December 2018 alone. This was the biggest share price decline over the month, and as a result, the Bifm Local Equity Fund declined by 1.24 percent over the month of December. Due to its overweight holding in Letshego relative to the benchmark DCTRI, this means that it underperformed the benchmark for the month of December 2018. The company did not release any new financial information over the period; however, it was observed that a large block of shares (7 million) was traded at the beginning of December 2018, causing the 10.5 percent share price decline. Despite this share price decline in December 2018, Letshego is still one of the listed companies that is well diversified, that has strong fundamentals and the Fund manager believes that it will continue to add value for its Local Equity Fund going forward, as it has in past.
The Bifm Balanced Prudential Fund on the other hand was affected by performances of global equities and local equities in December 2018. The Fund declined by 2.83 percent during the month of December. The biggest decline for the month of December was global equities which declined by 5.8 percent. The reasons for this big decline were the trade dispute between the US and China (the biggest markets in the world), heightened political uncertainty and economic weaknesses in UK, Germany, France, and rising interest rates in the US. The combination of these factors affected the global shares negatively in the last month of 2018. The Bifm Balanced Prudential Fund was also affected by its local equity portfolio, particularly by Letshego, whose share price fell by 10.5 percent as mentioned earlier for the period during December 2018 alone. The company remained comfortable with exposure to global equities and local equities and further believes that its investment philosophy and processes will withstand the current volatility that is currently facing the global and local equities. The Bifm Balanced Prudential Fund has provided positive returns and also beating the benchmark over the long term in line with its objective.
In light of the above, investors have been urged to keep in mind that both the Bifm Local Equity and Bifm Balanced Prudential Funds are medium to long term Funds as they are prone to market movements such as this. An investor should take note of the prevailing unit price of their Fund when making withdrawals in order to make informed decisions about their disinvestments.