Expectations for 2020   

Review of 2019

On 31 December 2019 stock markets around the world closed out one of the best years they've had in the past decade – the S&P 500 index gained approximately 30% in 2019, its best year since 2013, beating the FTSE All-World index, which was up 24% in US Dollars for its strongest result since 2009.

Twelve months ago, good returns like these were almost inconceivable. In the final month of 2018, there was a market sell-off of approximately 15% of US blue-chip companies due to fears over rising interest rates and slowing global growth. This resulted in many money managers predicting a full-blown global recession at the start of 2019. Fortunately, however, those fears were over-exaggerated.

According to data from central-bank tracking service CBRates, 2019 saw 56 central banks cut rates 129 times – one of the most notable monetary policy U-turns in recent memory. Concerns over a global recession were eased by reducing interest rates in the major developed economies, such as the US and the Eurozone, as well as in the biggest emerging markets, such as China, India, Russia and Brazil.

taking action

This monetary policy loosening pushed interest rate expectations significantly lower – a shift that prompted market prices to increase across asset classes. This re-pricing included South African equities which gained 12% during the year, driven primarily by cyclical resource stocks as well as Naspers.

South African bonds also performed well last year (SA All Bond Index was up 10%), with the SA government 10-year bond currently offering a yield of 9%. This good performance in the local bond market has been aided by a diminishing supply of global bonds offering decent yields. Twenty years ago, over half of the global bond market boasted yields in excess of 5%. Today, only three percent of the market are still able to offer that kind of yield (according to ICE Data Indices).

Despite an improved performance in 2019, South African investments continue to disappoint relative to offshore investments. This trend is likely to continue since South Africa's major growth impediments (policy uncertainty, load-shedding, credit downgrades, etc.) have not been satisfactorily addressed, all evidenced by historically low business and consumer confidence. Consequently, we continue to maximise investors' exposure to high-quality dividend-paying stocks listed on first world stock exchanges.

A relatively high exposure to companies like Nestlé, Proctor & Gamble and L'Oréal has served our investors well. Over the last 3, 5 and 10 years our equity-based portfolios have produced favourable outcomes relative to peers, from both an income and total return perspective. The long-term performance of our income funds has also been solid thanks to a high exposure to 3 – 5 year fixed deposits offering attractive yields.

Expectation for 2020

So, what to expect in 2020? Many of the key questions from 2019 remain unanswered as we head into the new year: Are we still heading for a global recession? What is next for the UK and Brexit? Will the US/China trade war simmer down or boil over? And, what will Trump do next?

This uncertainty (which undermines investment) coupled with a grossly over-indebted financial system suggests that the current environment of sluggish economic growth and low inflation will continue for the foreseeable future – a scenario which has clearly been priced into the yield curve, as evidenced by the $10 trillion market value of sub-zero (negative-yielding) bonds. This low growth, low inflation scenario is further entrenched by limited scope for additional monetary policy loosening.

Country 1 yr 2 yrs 3 yrs 5 yrs 7 yrs 10 yrs 20 yrs 30 yrs
Switzerland -1.0% -1.1% -1.2% -1.1% -1.1% -1.1% -0.7% -0.6%
Germany -0.8% -0.9% -0.9% -0.9% -0.9% -0.7% -0.4% -0.2%
Denmark -0.9% -0.9% -0.9% -0.7% -0.5%
Netherlands -0.9% -0.9% -0.8% -0.7% -0.5% -0.3% -0.2%
Austria -0.7% -0.8% -0.8% -0.7% -0.6% -0.4% -0.1% 0.1%
Finland -0.8% -0.8% -0.8% -0.4% 0.4%
Slovakia -0.4% -0.5% -0.4% 0.4%
France -0.8% -0.8% -0.9% -0.8% -0.6% -0.4% 0.1% 0.4%
Sweden -0.7% -0.7% -0.6% -0.4% 0.1% 0.4%
Belgium -0.8% -0.8% -0.8% -0.8% -0.6% -0.4% 0.1%
Japan -0.3% -0.3% -0.3% -0.4% -0.4% -0.3% 0.1% 0.1%
Slovenia 0.0% -0.6% -0.6% -0.5% -0.2% 0.5%
Ireland -0.6% -0.7% -0.5% -0.4% -0.1% 0.4% 0.7%
Portugal -0.5% -0.6% -0.5% -0.3% -0.1% 0.1% 0.7% 1.0%
Malta -0.3% -0.3% -0.3% -0.1% 0.7%
Spain -0.5% -0.6% -0.5% -0.3% -0.2% 0.2% 0.5% 1.0%
Cyprus 0.1% -0.1% 0.0% 0.2% 0.4%
Bulgaria -0.2% 0.0% 0.2% 0.4% 0.4%
Italy -0.2% -0.2% 0.0% 0.4% 0.7% 1.0% 1.7% 2.1%
United States 1.8% 1.5% 1.4% 1.4% 1.5% 1.5% 1.8% 2.0%
Source: worldgovernmentbonds.com (30 August 2019)

Reasons why the world’s best dividend-paying investments will serve investors best

1. Dividends to become increasingly sought-after.

With cash and bonds offering investors very little in the way of yield, investors are likely to turn to dividend paying equities for income.

The chart highlights the yield differential between Nestlé (a well-known Swiss multinational) and the Swiss 30-year government bond. The current 2.6% yield differential is unusually high and unlikely to persist, considering both investments pay out income in Swiss Francs and exhibit similar levels of price volatility. This presents downside risk to bond investors, and upside potential for dividend investors.

Yield Differencial
2. Defensives should outperform cyclicals.

Companies which produce goods and services that consumers can't go without have the ability to increase prices without sacrificing volumes even when times are tough. As such, a low growth environment favours businesses operating in "defensive" industries, like food, beverages and healthcare, over more "cyclical" companies, like resource and energy stocks.

Having a diversified portfolio of well-loved and trusted consumer brands has enabled Nestlé to generate a good track record of reliable growing dividends and robust returns going back to 1959.

This graph highlights how Nestlé has been able to consistently increase its dividends throughout the various economic cycles, including the great recession of 2008/9.

Nestle SA Reg
3. Quality will be key.

A company's brand, business model and balance sheet are all put to the test when economic growth is subdued. Based on our experience, the businesses which tend to come out on top have the following qualities:

  • Size and scale
  • Market-leading brands
  • Geographic diversification
  • Low debt levels
  • High, free cash flow

Coca Cola, for instance, is the market leader in multiple non-alcoholic beverage categories, generates sales in 180+ different countries, boasts a market capitalisation of over $200 billion and has an AAA credit rating – qualities which have helped underpin 57 consecutive dividend increases.

4. South African markets likely to remain under pressure.

Unfortunately, a low growth environment will make it increasingly difficult for SA to achieve the level of economic growth required to reduce unemployment and stabilise the country’s credit rating. As such, consumer and business confidence is likely to remain low, along with dividend growth – the long term driver of capital growth.


A prolonged period of low inflation and weak global growth suggests that the world's best dividend-paying companies are likely to serve investors best in the years ahead. For high quality companies like Nestlé, Coca Cola and Procter & Gamble not only are their dividend yields significantly higher than bond yields, but their "defensive" products and strong balance sheets suggest they will continue to increase dividends despite tough conditions.

The chart highlights the relationship between dividend and capital growth over the long term.

Reliable dividend growth and an acceptable yield to re-invest should ensure inflation-beating returns from these investments in a world of negative interest rates. As such, we continue to maximise investors’ exposure to these companies across our portfolios. We discuss our portfolios in more detail in the next section.

Procter and Gamble

Fund and Portfolio Update


Marriott Equity-based Funds

The resilient performance of our equity based portfolios is largely attributable to maximising offshore exposure – in particular, high quality dividend paying stocks. We prefer to invest in defensive stocks which provide reliable growing dividends through different economic cycles. In a low growth environment, overly cyclical industries, such as resources, don't produce the consistent income which is so critical to generating predictable investment outcomes.

As at 31 December 2019 1 year 3 year 5 year
Total Return Sector Return Income Produced# Total Return* Sector Return* Income Produced# Total Return* Sector Return* Income Produced#
Dividend Growth Fund (R) 4.0% 8.0% R31 101 3.9% 3.4% R92 705 3.3% 2.9% R156 636
Balanced Fund (C) 7.6% 9.4% R43 124 5.8% 5.0% R133 826 5.7% 4.7% R225 299
Worldwide Fund (C) 13.7% 13.2% R30 261 7.7% 6.4% R90 243 7.8% 6.6% R160 841
First World Equity Feeder Fund (A) 18.0% 21.8% R36 594 8.9% 10.6% R87 604 9.0% 9.9% R164 501
*Annualised     #Assuming R1,000,000 invested     Source: ProfileData

Marriott Offshore Share Portfolios

After a volatile 2018, 2019 proved to be a very good year for the world’s best dividend paying stocks, notably in the consumer stables sector. The recovery was largely driven by the realisation that higher interest rates (and hence bond yields) are unlikely to be sustained over the longer term. Furthermore, recent company results have showcased the ability of these companies to adapt to changing consumer preferences.

Total Return as at 31 December 2019 GBP USD EUR
1 yr 3 yrs* 5 yrs* 1 yrs 3 yrs* 5 yrs* 1 yrs 3 yrs* 5 yrs*
Income Growth Portfolio 19.6% 7.8% 10.8% 24.1% 10.3% 7.2% 26.4% 8.0% 8.9%
Balanced Portfolio 19.2% 7.9% 10.9% 23.7% 10.4% 7.4% 26.0% 8.1% 9.0%
*Annualised Gross     Source: Bloomberg


Marriott Income Funds

Our income funds produced returns ahead of the 8% guidance we provided at the beginning of 2019. The pleasing outcomes are largely attributable to a relatively high exposure to medium term fixed deposits with the major banks. Not only did investors enjoy the attractive yields these instruments offer, but also benefited from a positive re-rating (price appreciation) due to a downward shift in the shorter end of the SA yield curve.

Looking ahead, the portfolios are well positioned for a potential Moody’s downgrade given low modified durations and reasonably high cash balances to take advantage of opportunities. Based on current positioning, our return expectations for the portfolios is approximately 7 - 8% p.a. over the next 24 months.

As at 31 December 2019 1 yr 3 yrs 5 yrs
Total Return Income Produced# Total Return* Income Produced# Total Return* Income Produced#
Core Income Fund (A) 9.3% R77 928 8.7% R248 331 8.0% R401 416
High Income Fund (C) 9.5% R81 233 8.8% R248 346 8.0% R405 719
Income Fund (R) 8.5% R75 533 8.2% R227 572 7.7% R360 527
Sector Average 8.2% R69 675 7.7% R210 668 7.4% R338 858
*Annualised     #Assuming R1,000,000 invested     Source: ProfileData

The Essential Income Fund has a targeted asset allocation (40-50% SA equities, 25-35% SA property, 20-30% SA long-term bonds, 5% cash). The Fund's asset allocation will remain relatively stable as we believe this is the right mix for investors looking for the highest sustainable level of inflation-hedged income. Within this asset allocation we will actively manage the underlying securities to maximise the income produced by the portfolio.

As at 31 December 2019 Since inception (01/03/2019)
Total Return Income Produced#
Essential Income Fund (C) 0.1% R39 545
#Assuming R1,000,000 invested     Source: ProfileData

The Essential Income Fund has a primary objective of providing a high level of reliable income for investors and to grow this income in line with inflation over time. The secondary consideration is growth in capital in line with inflation over time.


Marriott Property Fund

SA Listed property was the worst performing asset class for the year delivering -0.4% (All Property Index – ALPI), underperforming equities (12.1%), bonds (10.3%) & cash (7.3%). Despite weak SA property fundamentals, the Marriott Property Income Fund produced a positive total return of 0.5% for the 12 months ending 31 December 2019, which was ahead of the sector and largely attributable to our emphasis on quality and sustainable earnings in our stock selection process.

As at 31 December 2019 1 year 3 year 5 year
Total Return Sector Return Income Produced# Total Return* Sector Return* Income Produced# Total Return* Sector Return* Income Produced#
Property Income Fund (A) 0.5% 0.1% R61 765 1.0% -4.0% R184 182 2.4% 0.8% R306 060
*Annualised     #Assuming R1,000,000 invested     Source: ProfileData

First World Hybrid Real Estate plc

FWHRE delivered a favourable 11.3% total return for 2019. The Fund, which comprises mainly distribution type property and with no exposure to the high street or traditional shopping centres, remains well positioned to generate robust income for investors underpinned by a direct property portfolio that is well let, to substantial tenants, on long leases. This should be seen positively in an investment environment where attractive income yields seem increasingly hard to come by. Our longer term return expectation for FWHRE remains between 4.5% and 6.5% p.a., comprising of a yield of 4.5% and annual property rental growth of 1-2% over time.

Total Return as at 31 December 2019 (GBP) 1 year 3 year* 5 year*
Income Return Price Return Total Return Income Return Price Return Total Return Income Return Price Return Total Return
First World Hybrid Real Estate plc (A) 5.0% 6.2% 11.3% 5.2% 2.6% 7.9% 5.0% 2.4% 7.4%
*Annualised     Source: Marriott


Looking ahead, we anticipate that our portfolios will continue to serve investors well as our income focused investment style which emphasises "quality" – companies that are resilient to changing economics, politics and technology – is well suited to the current macro-environment.