According to leading asset manager, Botswana Insurance Fund Management (Bifm), the Local Equity Unit Trust Fund’s performance remained positive for the third quarter of the year. The Fund’s return of 6.07 percent lagged the benchmark performance of 6.73 percent by 0.65 percent. The Fund’s performance over the 12-month period is positive, reported at 9.79 percent and marginally lagging the benchmark performance of 9.80 percent.
Local and offshore allocations registered positive performance, but both lagged their respective benchmarks. Global equities rose within the first two months of the quarter, supported by improving economic data and strong earnings releases. However, Bifm says this was negated by fears about rising COVID-19 cases, supply chain challenges and inflationary pressures.
This resulted in a general decline in market performance for the MSCI World Index (which represents developed economies) of 0.35 percent. For the developed markets, Bifm notes that the decline was led by economically sensitive stocks, which shed value, with the likes of the materials sector shedding 6.24 percent. Overall, seven of the 11 MSCI World sectors, representing 47.97 percent of the index, shed value. The MSCI Emerging Market Index recorded a negative performance of 8.84 percent.
Some of the disparity in performance between the developed and emerging markets reflects the disparity in vaccination rates, Bifm says, noting that the developed nations’ vaccination remains above the world average, with the Unites States, for example, indicating that 58 percent of its population has been vaccinated. These economies have been able to open much earlier, with normal activity open to the vaccinated populations.
Emerging markets, on the other hand, have reported vaccination rates below the world average. The complete opening up of these economies was largely challenged, with most of the frontier markets vaccination rates below 20 percent.
Locally, the financial sector heavyweights led the DCI’s positive performance of 4.20 percent. Overall, the quarter was flush with new information as companies with a June full or half year-end released updated results, which showed marked improvements. “Throughout the challenges we have experienced in 2020 and the recovery in 2021, our focus has been to identify high quality securities and attain such at the most reasonable price points relative to our intrinsic valuations,” Bifm says, adding that this has been and will continue to be executed in such a way that the portfolio remains well-diversified and reflects the best opportunity set.
“We continue with our efforts to reduce exposure to companies which we deem to be weaker and therefore pose a threat to the portfolio over the long term.” Bifm notes, saying liquidity remains a challenge, limiting efforts to increase and decrease exposures in several companies.
Pula Money Market Fund
Over the third quarter of 2021, the Fund returned 1.13 percent significantly outperforming the benchmark return of 0.15 percent. On a 12-month basis, the Fund returned 4.55 percent, an outperformance of 401 basis points over the benchmark which returned 0.54 percent for the same period.
The Bifm Pula Money Market Fund invests in Call and Fixed deposits and Treasury Bills. Bifm says it actively manages the portfolio, by seeking yield assets without compromising the risk and maturity profile of the Fund.
The decline in banking sector liquidity observed at the dawn of Q2 persisted over the third quarter of 2021. This follows a substantial amount of liquidity mopped up by the Bank of Botswana through increased bond issuances. The lag in expenditure following the auctions meant that the funds where not reinjected back into the banking sector. As a result, Bifm says the sector found itself with a decreasing liquidity position throughout the quarter.
“This was positive for money market investors as competition for deposits became stiffer and thus banks started quoting higher rates in a bid to attract funding,” the fund manager says.
Balanced Prudential Fund
The Bifm Balanced Prudential Fund returned 2.55 percent over the third quarter of 2021. The fund underperformed its benchmark return of 2.89 percent by 0.34 percent.
The Bifm Balanced Prudential Fund is a multi-asset class fund that invests in both local and offshore equities, bonds and money market instruments. Within the quarter, Bifm notes that both asset allocation and stock selection detracted from fund relative performance.
Over the 12-month period to September 2021, the fund returned 10.32 percent due largely to the strong performance of offshore equities. This performance represented an outperformance of 2.09 percent against the fund’s benchmark’s return of 8.23 percent.
Under the Prudential Fund, the Bifm local equity allocation returned 7.72 percent over the third quarter of 2021. This performance exceeded the benchmark Domestic Companies Index (DCI) performance of 4.20 percent by 3.52 percent. The financial sector heavyweights led the DCI’s positive quarter.
Four of the six securities within the sector appreciated whilst the other two remained flat during the period. FNBB and Letshego, which rallied by 13.18 percent and 34.09 percent respectively, led the pack. Other sectors continued to record share price declines, the most notable being a 7.55 percent decline by Chobe and 5.00 percent by Turnstar.
The Local Bond allocation underperformed the benchmark (Fleming Aggregate Bond Index – FABI) return of -2.09 percent by 2.18 percent over the quarter, returning -4.27 percent, according to Bifm. The asset manager notes that the Fund maintained an overweight allocation to credit vis-à-vis the benchmark (FABI, Fleming Aggregate Bond Index). Exposure to Government bonds increased over the quarter as additional purchases were made at government bond auctions held in the period.
The Bifm World Equity allocation returned 2.18 percent over the second quarter of 2021. However, this was an underperformance of 1.49 percent against the benchmark return of 3.67 percent. World equities started the quarter strong, with a rally supported by positive corporate earnings.
However, concerns around slowing economic growth, rising inflation, supply chain disruptions, and rising uncertainty in emerging markets towards the end of the quarter led to increased volatility and losses. Overall, the MSCI World index ended the quarter broadly flat.
The Bifm Global Fixed Income allocation returned 2.70 percent over the quarter, underperforming the benchmark (BarCap Global Aggregate) by 0.06 percent which returned 2.76 percent over the same period. Bifm warns that data regarding rollout of COVID-19 vaccinations was promising, resulting in less pressure on the global healthcare systems. However, another wave can certainly not be ruled out hence some pessimism persisted over the quarter. On the back of the volatility, the fund manager observed: “We saw a global bond sell-off with rates rising slightly in the US, Germany and the UK.”