The continuation of the rally in the equities market continued in December with the MSCI World Index concluding the year at 4.9%* for the month while the fund was up 5.2%*, outperforming the index for the month. The fund benefitted from our increase in equities relative to other asset classes. MSCI World Index was up 24.4% for 2023, truly exceptional returns and this rally was mainly due to the ‘Magnificent Seven’ which is Meta, Alphabet, Telsa, Microsoft, Nvidia, Apple and Amazon. The fund was up 11.2% for the year, underperforming MSCI World because we were underweight equities in Q1 2023 which is when the Magnificent Seven saw their largest rally. The bond market also saw a rally the last month of the year as recession fears eased and U.S. core inflation continued to decline.
All returns are in USD
In terms of economic data, U.S. annual inflation for December saw a slight increase of 3.4%, up from 3.1% in November. However, annual core inflation- which excludes food and energy- continued to see a decline at 3.9% for December, lower than November’s annual inflation which was at 4%. The important metric the Fed will look at is the PCE (personal consumption expenditures) Index as it’s a broader measure of consumer behaviour because it accounts for substitution unlike the CPI basket which is a fixed basket. The Fed does look at the CPI-basket, but they’ve emphasized on the importance of PCE Index which its December figure comes out a few days before the January 2024 Fed meeting.
Europe’s inflation was also up to 2.9% for December after seven months of it declining, in November its inflation was 2.4%. The uptick was mainly due to food and energy prices. However, the increase was expected by the market due to the base effects calculation of inflation as energy prices declined by 11.5% in November and 6.7% in December year-on-year; and the price caps many European governments had placed on energy prices expired in December which resulted in an increase in energy prices. Core inflation fell from 3.6% in November to 3.4% in December.
The fund’s best performers for the month were Idexx Laboratories (+19.2%), Straumann Holding (+16.6%) and Arena REIT (+15.2%). Arena released a market update mid-month with average like-for-like rent increases of 5.4% for HY24. It stated that 76% of their rental income for FY24 will be higher of ‘agreed fixed amount’ or CPI, and 9% of their rental income has a CPI-linked review. They reaffirmed their FY24 distribution guidance of 17.4 cents per security, which is a 3.6% increase from FY23.
2024 is election year with national elections scheduled for at least 64 countries, including in South Africa, making that almost 50% of the global population. U.S., European Union, UK, India, Taiwan, and South Korea are all having elections. Furthermore, inflation numbers will continue to remain important as the market has already priced in rate cuts from major economies as early as March.