2023 – A good year for Marriott's portfolios

The past 12 months presented several challenges for both developed and developing markets globally. Equity, bond, and other asset classes had to contend with a potential US banking crisis, geopolitical uncertainty, persistent inflation, and elevated interest rates. This created a difficult operating environment for consumers, businesses, and governments alike.

As the year unfolded markets focused heavily on the latest inflation data and what it meant for interest rates. This caused significant volatility within financial markets as participants speculated on the timing of potential interest rate cuts, and whether restrictive monetary policies would ultimately tip the world into recession.

Towards the end of 2023, however, it became increasingly apparent that the global economy was still reasonably strong, that unemployment had remained low, and inflation appeared to be "under control" – a much better outcome than what most economists had anticipated, and markets had priced in, as evident in the chart.

These positive economic surprises provided a substantial boost to most financial assets in the last two months of the year, which assisted in generating good outcomes for investors across our flagship funds as evidenced in the table below.

As at 31 December 2023 Total Return
1 year 3 years* 5 years*
Balanced Fund (C) 12.0% 7.6% 6.4%
Core Income Fund (A) 10.3% 6.7% 7.8%
Core Income Fund (C - LISPS only) 10.7% 7.0% 8.1%
Dividend Growth Fund (R) 14.7% 10.2% 5.3%
First World Equity Feeder Fund (A) 14.4% 9.9% 11.9%
*Annualised      Source: ProfileData

Ultimately, what unfolded in our funds in 2023 demonstrates the essence of Marriott's investment philosophy – buy high-quality, income-producing investments and look to hold them for the long term. It's often said that 'time in the market' is what counts, not 'timing the market'. We agree, and this is especially true when one is invested in companies that can consistently and reliably grow dividends. During 2023 the dividends of the international and local companies in our portfolios increased by approximately 8% and 16% respectively. Over time, this invariably translates into capital growth, as evident in the chart below:


Source: Bloomberg

Looking ahead to 2024

As we move into 2024, the downward trajectory of inflation and the potential for interest rate cuts is expected to bring relief to a heavily indebted world. However, it should be noted that interest rate cuts are normally associated with an economic slowdown. In such an environment, more accommodative monetary policy is needed to stimulate growth and prevent the slowdown tipping into a full-blown recession.

According to the World Bank, the global economy will grow more slowly over the next two years than it did in the decade before COVID-19. We concur for the following reasons:

  1. On-going Restrictive Monetary Policies. Although the expectation is that central banks will begin to cut rates in 2024, interest rates will likely remain higher for longer with central banks hesitant to cut rates extensively until inflation is fully under control. The era of rock-bottom interest rates appears a thing of the past.
  2. A Heavily Indebted World. The global economy remains heavily indebted which, when coupled with elevated interest rates, restricts the spending power of consumers and companies alike. Further, the fiscal challenges faced by governments around the globe will make it harder to cut taxes in a slowdown.
  3. Geopolitical Uncertainly. The potential escalation of recent conflicts, particularly in the Middle East and Ukraine, remain a concern. Further, fragmentation of global trade, protectionism and on-shoring all threaten to keep upwards pressure on inflation and drag on economic growth. Adding to the uncertainty are key elections in the USA, United Kingdom and indeed South Africa all taking place later this year.
  4. China's Growth Rate. A loss of economic momentum, property market concerns and an ageing workforce suggest the world cannot rely on China's growth to spearhead global growth anymore.

While a global recession may still be avoided, evidence of a material economic slowdown is mounting. This is good news for central bankers determined to reduce inflation but not for the earnings and dividend growth prospects of companies – the most important driver of share price appreciation over the longer term. Unfortunately, it appears that the trade-off for lower inflation will be stalling growth. However, with Marriott's income focused investment style, the companies we choose for our portfolio all have certain qualities which enable them to perform more predictably through all stages of the economic cycle. We discuss these in the next section.

Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019 (Michael Smolyansky, Principle Economist, Board of Governors of the Federal Reserve System).

How does one position portfolios for such an environment? Often in an economic slowdown it is the high-quality companies that produce business and consumer essentials that serve investors best. Why? On a relative basis, they are significantly less reliant on favourable conditions to produce reliable and growing earnings – unlike resource producers and other cyclical companies. This makes them a far more predictable investment and is precisely why they form the foundation of our investment style.

The key attributes of the stocks in our portfolios, that stand them in good stead when times get tough, are outlined below.

Company Sector Market Position
Coca-Cola Soft Drinks 1
Diageo Spirits 1
Equinix Data Centres 1
Johnson & Johnson Healthcare 1
L'Oréal Cosmetics 1
LVMH Luxury Goods 1
McDonald's Fast Food 1
Medtronic Medical Devices 1
Microsoft Software 1
Nestlé Food 1
Nike Sports Apparel 1
Procter & Gamble FMCG 1
S&P Global Credit Ratings 1
Starbucks Coffee 1
Visa Global Card Payments 1
Source: Bloomberg & Marriott
*equities currently held in Marriott’s IIP Growth Portfolio    Source: Refinitiv, Marriott
Source: Refinitiv
Company Years of Consecutive Dividend Increases
Abbott Laboratories 52
Coca-Cola 61
Johnson & Johnson 61
Procter & Gamble 67
S&P Global 51
Source: Refinitiv

It is these qualities which enable the companies in our portfolios to perform more predictably through all stages of the economic cycle. However, it is their ability to continue growing dividends during economic slowdowns (and even recessions) that makes them ideally suited for the months and years ahead. The government and blue-chip corporate bonds in our funds are also likely to perform well given declining inflation and the attractive yields on offer. As such, we are confident that Marriott's portfolios will continue serving you well from both an income and capital growth perspective.

Although higher rates globally create some challenges for individuals, companies and governments alike, it also presents to investors an opportunity that has been missing for the past 15 years. With First World interest rates currently at multi-decade highs, as evident in the chart below, attractive hard currency returns are possible with significantly less risk.


Source: Bloomberg

As a result, Marriott is launching two new portfolios within the International Investment Mandate. The Smart International Income Portfolio offers both a US Dollar and Sterling portfolio. Importantly, these portfolios hold their interest-bearing assets via accumulating ETFs and funds – this is highly efficient for South African investors as all income is automatically retained within the portfolios without incurring tax. When capital is required, the investor can simply repurchase the required amount. Although a tax charge is triggered at this point, it will be subject to capital gains tax as opposed to income tax – providing a large tax saving for individual South African investors.

See the Smart International Income Portfolio brochure online for more information.

Please see the latest commentary for each fund in our recent factsheets.

Income Funds: Bonds, best place to be invested

As at 31 December 2023 Total Return Income Produced#
1 year 3 years* 5 years* 1 year 3 years* 5 years*
Core Income Fund (A) 10.3% 6.7% 7.8% R83 513 R205 496 R358 764
Core Income Fund (C – LISPs only) 10.7% 7.0% 8.1% R86 347 R213 794 R373 151
High Income Fund (A) 10.2% 6.5% 7.7% R81 933 R202 776 R356 213
Income Fund (R) 9.5% 6.3% 7.0% R81 636 R191 532 R330 678
Sector Average (SA – Multi Asset – Income) 9.3% 7.3% 7.2% R72 398 R175 800 R302 782
*Annualised     #Assuming R1,000,000 invested     Source: ProfileData

Equity Funds and Portfolios: Quality is key for the long-term

As at 31 December 2023 Total Return Income Produced#
1 year 3 years* 5 years* 1 year 3 years* 5 years*
Dividend Growth Fund (R) 14.7% 10.2% 5.3% R34 872 R93 144 R140 745
Sector Average (SA – Equity – General) 7.4% 12.0% 8.9% R32 394 R99 785 R156 131
First World Equity Feeder Fund (A) 14.4% 9.9% 11.9% R23 784 R61 637 R138 944
Sector Average (Global – Equity – General) 26.5% 9.4% 13.9% R3 776 R7 015 R19 917
*Annualised     #Assuming R1,000,000 invested     Source: ProfileData
As at 31 December 2023 Total Return GBP Total Return USD Total Return EUR
1 year 3 years* 5 years* 1 year 3 years* 5 years* 1 year 3 years* 5 years*
IIP – Income Growth Portfolio 1.4% 7.1% 10.3% 7.1% 4.7% 10.3% 3.6% 8.3% 11.0%
*Annualised Gross of Investment Management Fee     Source: Bloomberg

Property Funds: On the right side of disruption

International Real Estate
As at 31 December 2023 Total Return Income Produced#
1 year 3 years* 5 years* 1 year 3 years* 5 years*
International Real Estate Feeder Fund (A) 20.3% 9.7% 7.8% R39 948 R100 374 R182 022
Sector Average (Global – Real Estate – General) 18.9% 8.7% 7.9% R13 865 R37 827 R72 869
*Annualised     #Assuming R1,000,000 invested     Source: ProfileData
As at 31 December 2023 Total Return GBP
1 year 3 years* 5 years*
First World Hybrid Real Estate plc (A) -1.8% 3.7% 5.6%
*Annualised Gross of Investment Management Fee     Source: Marriott
South African Real Estate
As at 31 December 2023 Total Return Income Produced#
1 year 3 years* 5 years* 1 year 3 years* 5 years*
Property Income Fund (A) 5.7% 11.3% -2.0% R71 667 R228 237 R245 261
Sector Average (SA – Real Estate – General) 8.9% 13.3% -0.4% R57 243 R204 487 R224 921
*Annualised     #Assuming R1,000,000 invested     Source: ProfileData

Multi-asset Funds: Best of both worlds

As at 31 December 2023 Total Return Income Produced#
1 year 3 years* 5 years* 1 year 3 years* 5 years*
Balanced Fund (A) 11.4% 7.0% 5.8% R52 232 R137 510 R213 047
Balanced Fund (C) 12.0% 7.6% 6.4% R58 064 R155 101 R242 329
Sector Average (SA – Multi Asset – High Equity) 12.2% 10.5% 9.2% R30 896 R84 492 R147 358
Essential Income Fund (C) 10.4% 8.6% n/a R67 639 R209 259 n/a
Sector Average (SA – Multi Asset – Flexible) 9.9% 10.8% 8.3% R35 590 R96 345 R163 048
International Growth Feeder Fund (A) 13.8% 8.8% 11.5% R25 930 R65 572 R145 998
Sector Average (Global – Multi Asset – Flexible) 22.3% 8.9% 11.0% R2 630 R6 412 R14 616
Worldwide Fund (A) 11.9% 7.9% 8.9% R35 834 R85 432 R152 391
Worldwide Fund (C) 12.5% 8.5% 9.5% R41 838 R103 882 R186 292
Sector Average (Worldwide – Multi Asset – Flexible) 19.2% 9.1% 10.2% R14 567 R29 529 R56 792
*Annualised     #Assuming R1,000,000 invested     Source: ProfileData
As at 31 December 2023 Total Return GBP Total Return USD Total Return EUR
1 year 3 years* 5 years* 1 year 3 years* 5 years* 1 year 3 years* 5 years*
IIP – Balanced Portfolio 0.9% 6.6% 9.8% 6.7% 4.2% 9.7% 3.1% 7.7% 10.5%
*Annualised Gross of Investment Management Fee     Source: Bloomberg
Disclosures

Collective investment schemes are generally medium to long-term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. If required, the manager may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. Forward pricing is used. The ruling price of the day is calculated at approximately 15h00 SA time each day. Purchase and repurchase requests must be received by the manager by 15h00 SA time each business day. Prices are published on a daily basis on the Marriott website, www.marriott.co.za. Unit trusts are calculated on a net asset value basis. Net asset value is the value of all assets in the portfolio including any income accrual and less any permissible deductions from the portfolio. Marriott does not provide any guarantees with respect to the capital or the return of the portfolio. A schedule of fees and charges and maximum commissions is available on request from Marriott. Where initial fees are applicable, these fees are deducted from the investment consideration and the balance invested in units at the net asset value. Commissions and incentives may be paid and if so, would be included in the overall costs. Different classes of units apply to the fund and are subject to different fees and charges. Declaration of income accruals are monthly. Performance figures are based on lump sum investment. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Past performance is not indicative of future performance. This portfolio may be closed to new investors in order to manage it more efficiently in accordance with its mandate. The TER shows the percentage of the average Net Asset Value of the portfolio that was incurred as charges, levies and fees relating to the management of the portfolio. A higher TER ratio does not necessarily imply poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Transaction Costs are a necessary cost in administering the Financial Product and impacts Financial Product returns. It should not be considered in isolation as returns may be impacted by many other factors over time including market returns, the type of Financial Product, the investment decisions of the investment manager and the TER. Marriott Unit Trust Management Company (RF)(Pty) Ltd is a member of the Old Mutual Investment Group. Old Mutual is a member of the Association for Savings and Investment South Africa (ASISA).

Please note that where the term ‘yield/yields’ is used, these are historic yields

Local Investments

What do you want to do?

Minimum investment

Product

Grow your wealth but have access to it when you need it.

R500 lump sum and/or R300 debit order

Unit Trusts

Draw an income from your retirement savings.

R50,000

Living Annuity

Draw an income from your personal wealth savings.

R50,000

Income Solution

Save for retirement in a tax efficient way.

R10,000 lump sum and/or R300 debit order

Retirement Annuity

Transfer your retirement savings when changing employment.

R50,000

Preservation Fund

Offshore Investments

What do you want to do?

Minimum investment

Product

Invest in an offshore share portfolio.

£25,000

International Investment Portfolio (GBP)

Invest in a direct UK real estate Fund.

£10,000

First World Hybrid Real Estate plc (GBP)

Invest in currency accounts in £ or $.

£25,000 or $30,000

Smart International Income Portfolio

Invest in offshore unit trusts.

£1,000 or $1,000

Unit Trusts (USD and/or GBP)

Invest in global unit trusts.

R500 lump sum and/or R300 debit order

Unit Trust Feeder Funds (ZAR)

Preservation Fund

Where

Minimum investment

Product

I am transferring from a ...

R50,000

Pension Fund

I am transferring from a ...

R50,000

Provident Fund