Flagship Asset Management

The market has already priced in a rate cut which should be announced by the Fed this afternoon. What we don’t know is the quantum – will it be an aggressive cut or not so much? One could argue that a 25 bps cut means that the Fed is not overly concerned about the state of the US economy, in which case the soft landing that is already priced in should come to pass. The expected sequence of upcoming rate cuts should support the US economy and, if history is anything to go by, would potentially create a further boost to S&P returns (as per the light blue line in Deutsche Bank's chart below). On the other hand, if the cut is more aggressive, in the region of 50bps, this signals that the Fed have possibly left it too long to reduce rates and the US may be headed for a recession, which will have a negative effect on equity assets. While we have a view as to the size of the cut coming, our flexible funds are ready to react decisively either way. #globalinvestments #investmentmanagement #wealth #investments

The expected interest rate cuts in September will be a relief for small, struggling US businesses who have been hardest hit by high real rates, as the chart from Bank of America Merrill Lynch clearly shows. #globalinvestments #wealth #moneymanagement #investmentmanagement

Why should South African investors care about the US consumer? Well, because the US consumer drives 67% of the US economy, which remains the biggest economy in the world. As the old adage goes, ‘when the US sneezes, the rest of the world catches a cold.’ So, the more pertinent question becomes; how healthy is the US consumer? Flagship fund manager, JD Hayward, CFA, weighs up the latest, often contradictory, economic indicators and the resulting investment implications in his latest article, published in Glacier by Sanlam. #investments #globalinvestments #wealth

The Fed Funds rate can sometimes be an indicator of a coming US recession. This is because recessions often follow rate cuts, with the first cut of this cycle all but guaranteed at the Fed meeting in a week’s time. However, there are a lot of contradictory indicators at the moment. On the positive side, we see in the US: - Low unemployment rates, - Inflation-beating wage increases, - Strong GDP growth (3% in Q2 '24), - Solid retail sales growth (2.4% year-over-year in Q2), - Rising consumer confidence in certain cohorts, and - Relatively strong household balance sheets. On the negative side there has been: - An uptick in unemployment rates to 4.2% from 3.5% a year ago, - A downward revision of job additions, - Rising household debt, especially credit card debt, and - Increasing credit card default rates due to higher borrowing rates. Markets are volatile, with the VIX index closing at its highest level (and the S&P500 experiencing is worst weekly drop) since the collapse of Silicon Valley Bank in March 2023. The main question to us is, will the Fed cut because they can (due to low inflation), or because they must (due to the potential for low growth / a possible recession ahead)? Will the Fed Funds rate be an accurate recession predictor this time, or not?

We highlighted last week that the US stands 3rd behind South Africa and Brazil in the 2023 list of most unequal countries by wealth. This chart from Bank of America Merrill Lynch shows an interesting take on the Global Wealth Report study by comparing the share price of Dollar General (a US discount retail store) with Ferrari. Both Dollar General and competitor Dollar Tree missed Q2 '24 earnings expectations when reporting results last week, due to weak sales from core customers. The reason that Dollar General is a proxy for the poor is because low-income households, earning less than US$35,000 a year, make up 60% of its revenue base. Dollar General reported a 20% decrease in net income of $374 million compared to a year ago, cutting 2024 earnings per share guidance by 18%. No explanation is needed as to why Ferrari, the luxury Italian sportscar manufacturer, can be used as a proxy for the wealthy, with 28% of all car shipments going to the US. In contrast to Dollar General, Ferrari posted strong Q2 '24 results, raising full year guidance to EUR6.6 billion. In typical luxury fashion, most of Ferrari’s sales are from cars whose supply is strategically limited. The share price rose 20% during August in an upward reflection of Dollar General 30% fall, highlighting the current divergence in consumer stocks performance.  #wealth #investments #investmentmanagement #globalinvestment

After a fairly volatile July, the start of August saw more of the same, before relative calm returned to markets late in the month. The US unemployment rate climbing for the 4th month in a row sent markets into freefall over fears that the Fed might have left interest rates too high, for too long – effectively steering the economy into a recession. These fears proved temporary, though, and markets clawed back some of the losses. The ongoing global conflicts, coupled with US debt breaching $35 trillion, meant investors still sought out safety in gold. The metal hit several record highs during the month, gaining 3.8% and closing above $2,500 per ounce. This means one standard bar of gold is now worth more than $1 million. Local investors experienced another strong month with the JSE All Share index gaining 1.4%. while the financials index gained 5.3%. Read more about this and other significant world events in our August monthly commentary. #investments #globalinvesting #investmentmanagement #wealth

Although the COVID-19 pandemic, and its accompanying side-effect, lock-down, were considerably tough times for many companies, it also proved to be the best of times for several office-solution businesses and pharmaceutical companies; vaccine maker Moderna, DIY marketplace Etsy, DocuSign (which allows companies to manage agreements electronically), home fitness company Peloton and the proverbial Zoom. People were huddled up at home and circumstances demanded a shift in the at-office routine. Colleagues and co-workers connected via online meeting tools, people created a world inside their homes and recreated the office-space, resulting in many of these pandemic darlings reaching peak value.   How have these businesses fared in the post-pandemic world? Not so well.   From its peak in March 2020 to May 2024, Moderna has seen a staggering 71% decrease in value. Despite rebranding in 2023, Peloton has seen a massive decline of 98% over the same period, as well as a potential private equity buyout. The online management tool, DocuSign, has seen a fall of 80%, with Etsy showing a similar decrease in value. Even Zoom shows an 89% decrease in value since the peak pandemic era.   Past performance is indeed not an indicator of future returns. Might this ring true in the years to come for todays AI darlings? #globalinvestments #investments #wealth Source: Statista

Bank of America's August 2024 South African Fund Manager Survey shows the positive outlook held by local managers post the GNU announcement in May. A net 44% of South African Fund Mangers see government reform accelerating post the elections in what Bank of America describe as a bullish turn for the country on a multi-year view. The primary risk cited for South African equities was weak earnings. If GNU reforms come to fruition, earnings could see an upgrade. SA Managers surveyed expect to see key reforms in rail, ports and transmission (electricity), which, if achieved, could lead to SA GDP growth of 2.0% to 2.5% in the next three years. While the effectiveness of the GNU remains to be seen, the optimism is apparent in that a net 83% of managers would overweight SA equities in the next year. #investmentmanagement #wealth

If you are living in South Africa, it should come as no surprise that there is vast wealth inequality – but where does our beloved country rank compared to others?   Top of the list? Yes, sadly, we win this one. South Africa exhibits the greatest wealth inequality of all countries ranked in the Global Wealth Report, scoring 82, where 100 represents absolute inequality. The levels of inequality have increased by almost 18% from 2008 to 2023.   The Statista graph shows that while other BRICS countries share the same increase in inequality as South Africa over this time frame, the only country that comes close to South Africa’s rank is Brazil at 81. India scores 73 and surprisingly, the US scores worse than both India and Mexico, at 75, and this after a 2.4% equality improvement since 2008. Wealth inequality has clearly been increasing in the fastest-growing economies. Inflation and affordability have influenced markets across the board and it’s evident that millennials are increasingly unable to afford the lifestyle that was characteristic of previous generations.   There is hope for South Africa following the formation of the Government of National Unity, which should provide clarity on policy direction and improve consistency, resulting in improved investor confidence. Inflation recently surprised on the downside and interest rates are expected to fall in September. This combination of factors should have an outsized impact on poorer communities. It may take years for South Africa to move lower down the inequality ranking, but hopefully the trajectory can be changed far sooner.   #investments #investmentmanagement #southafrica

Are you interested in getting to know the face behind the name? At Flagship, we are all about connection. It is easy to make personal connections at a boutique, essential in fact, as we all work very closely together. In order to better connect with our community, we have interviewed our global portfolio managers, so that you can get a feel for how they think about the world. Meet JD Hayward, CFA and listen to his story. #MeetTheFAM