EasyAssetManagement August Bundle Report

August closed weaker as investors worried about the global economy, rising interest rates, and earnings disappointments. Despite this, EasyAssetManagement (EAM) managed to beat average returns for balanced unit trusts in South Africa during the month, using data-driven algorithms to identify patterns and trends for better investment returns and reduced risk.

Highlights

• The Enhanced Equity portfolio was up 1.31% in August, while the Enhanced Balanced portfolio was up 1.36%.
• The portfolios were able to achieve this return by having a larger exposure to the S&P 500 and Nasdaq 100, which were both up around 2% in South African rand (ZAR).
• The portfolios have been positioned quite conservatively this year, which helped to limit losses.
• The portfolios have cut their exposure to the Consumer Discretionary sector, particularly Richemont and Naspers.
• The portfolios remain overweight in Financials and have recently increased that position, especially in insurance companies.
  

Markets were quite weak last August, with both the SWIX and Top 40 down by around -5%. Our Enhanced Equity portfolio was up 1.31%, while our Enhanced Balanced portfolio was up 1.36%. The balanced portfolio is benchmarked to the ASISA average, which returned -0.4% (the ASISA average represents the average returns for balanced unit trusts in SA). 

We were able to achieve this return by having a larger exposure to the S&P 500 and Nasdaq 100, both of which were up around 2% in ZAR. Additionally, our South African equity portfolio has been positioned quite conservatively this year, which helped to limit our losses; we were down around 3% in our SA holdings.

We have comparatively little exposure in the Materials sector of the JSE. This is reflected in the financial reports of those companies, which show decreasing earning momentum due to weakness in global growth, especially the weakness coming out of China. Our under-exposure in gold mining stocks had hurt us earlier in the year. However, we believe that although inflation may not be accelerating anymore in the US, it isn't falling as fast as some would hope, while the US economy remains resilient with a low unemployment rate. This will probably keep rates higher for longer, resulting in dollar strength and commodity weakness.

We have recently cut our exposure in the Consumer Discretionary sector dramatically, particularly our exposure to Richemont and Naspers. The appetite for global luxury, especially in China, is waning. Although we think Tencent is a fine company with a strong AI tailwind, the geopolitics of the US-China situation mean that investors are pulling money out of China. This impacts Tencent's share price and, by extension, Naspers. We believe we can gain this tech exposure better via other means. We remain overweight in Health Care and Consumer Staples.

We also remain overweight in Financials and have recently increased that position, especially in insurance companies. These companies have reported relatively strong results recently and benefit from high interest rates, earning income by investing their float and attracting customers with higher guarantees. They can afford to do so in a higher interest rate environment.

Enhanced USD

Our Enhanced USD portfolio was down about -3% in August compared to the S&P 500, which was down about -1.4%. We received mixed reports from companies in our portfolio, prompting us to rebalance the portfolio. For example, our five biggest individual share holdings, which make up about 25% of the portfolio, are The Trade Desk, Meta, GE, Nvidia, and Quanta Services. These shares returned -12%, -7%, 0.19%, 5.6%, and 4.09%.

These companies will continue to remain our top holdings even after we rebalance the portfolio. The Trade Desk specializes in online advertising that is not Google or Meta. As an example of its leading position, Netflix broke its exclusive deal with Microsoft to provide advertising on its content and selected The Trade Desk to help with this. Meta is leaning into its year of efficiency and using AI to help propagate its content while being one of the leading AI model providers. GE is up 74% year to date and is a leading beneficiary of companies benefiting from a growing infrastructure spend. The company is spinning off its different divisions, offering a benefit to long-term investors. Nvidia is powering the AI economy, while Quanta Services specializes in designing, installing, and repairing key infrastructure in the US, which has been a focus of both Republicans and Democrats.