The first half of 2023 has seen the continuation of the most aggressive and synchronised central bank hiking cycle in half a century. The US Federal Reserve rate now stands at 5.5%, the European Central Bank deposit rate at 4.25%, the Bank of England rate at 5.25%; and in South Africa, rates have increased to 8.25%. In all four regions interest rates are currently at 15-year highs.
From a financial markets perspective, the significant tightening of monetary policy thankfully did not stop the MSCI world index from gaining 15% as at 30 June 2023 when measured in US dollars. On closer inspection however, it is evident that outside of the technology sector most markets have drifted sideways, which is commensurate with a backdrop of high interest rates and stalling economic growth.
The consensus is that economic growth will continue to decline for the remainder of the year especially as services inflation is proving far "stickier" than goods inflation, particularly in the developed world. As such, interest rates are expected to move even higher, and stay elevated for longer, suggesting a recession is the inevitable conclusion to the inflation fight. The bond market certainly appears convinced, as evidenced by the deeply inverted US yield curve illustrated below:
– Year to Date as at 30 June 2023 |
|||||||||
| Technology | 39.1% | ||||||||
| Industrials | 14.5% | ||||||||
| Materials | 6.3% | ||||||||
| Finance | 3.8% | ||||||||
| Consumer Staples & Discretionary | 4.2% | ||||||||
| Real Estate | 1.5% | ||||||||
| Health Care | 1.1% | ||||||||
| Utilities | 0.6% | ||||||||
| Energy | -3.4% | ||||||||
| Source: Bloomberg | |||||||||
Source: Bloomberg
An inverted yield curve is typically a precursor to a recession and occurs when yields on shorter-dated bonds rise above yields for longer term bonds. This reflects an expectation that the central bank will need to cut rates to boost an economy hurt by higher borrowing costs. In the US, 2-year US treasuries are now yielding 0.9% more than 10-year treasuries – the steepest inversion since 1981. A recession therefore appears to be increasingly likely.
History teaches us that recessions and the associated market volatility tend to cause investors a great deal of financial anxiety. However, this is not because all investments perform poorly in these conditions. On the contrary, government bonds and consistent dividend-payers (dividend aristocrats¹ have a history of performing well when times are tough, as evident in the chart below. However, because downturns tend to arrive with very little warning, investors are frequently underexposed to these types of investments when the downturn begins – something Marriott clients do not have to worry about.
Marriott's philosophy of producing more predictable outcomes means we only invest in securities that produce reliable and consistent income streams. Accordingly, our income growth portfolios² are comprised of, what we consider to be, the best dividend-paying companies in the world such as Johnson & Johnson, Microsoft and Starbucks. The dividend track record two of these companies is highlighted below:
Source: Bloomberg
Source: Bloomberg
Our income yield portfolios³ on the other hand, are comprised primarily of high-quality bonds and cash, both of which are currently producing historically high levels of income, as illustrated below:
Source: Bloomberg
Source: Bloomberg
This income focused investment style ensures our portfolios are well positioned for all phases of the economic cycle – the tough times and the good times – which should be of great comfort to our investors.
With an investment style biased towards securities (like bonds and high quality, reliable dividend payers) that produce consistent income streams, Marriott's portfolios are ideally positioned to continue delivering predictable income and capital growth even if concerns about an economic downturn become a reality.
Please see the latest commentary on each fund in our factsheets, available on our website.
| As at 31 July 2023 | Total Return | Income Produced# | ||||
| 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | |
| Core Income Fund (A) | 9.4% | 6.1% | 7.5% | R80 648 | R194 552 | R353 447 |
| Core Income Fund (C – LISPs only) | 9.7% | 6.4% | 7.8% | R83 485 | R202 969 | R367 821 |
| High Income Fund (A) | 9.3% | 5.9% | 7.4% | R79 099 | R192 823 | R351 845 |
| Income Fund (R) | 8.1% | 5.7% | 6.8% | R74 242 | R176 035 | R326 306 |
| Sector Average (SA – Multi Asset – Income) | 8.0% | 7.0% | 6.9% | R67 844 | R170 962 | R305 668 |
| *Annualised #Assuming R1,000,000 invested Source: ProfileData | ||||||
| As at 31 July 2023 | Total Return | Income Produced# | ||||
| 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | |
| Dividend Growth Fund (R) | 11.6% | 10.4% | 4.2% | R32 460 | R91 972 | R135 287 |
| Sector Average (SA – Equity – General) | 12.6% | 14.5% | 7.3% | R35 582 | R107 086 | R145 129 |
| First World Equity Feeder Fund (A) | 15.1% | 7.2% | 11.7% | R19 440 | R54 235 | R124 395 |
| Sector Average (Global – Equity – General) | 18.9% | 8.2% | 11.5% | R3 385 | R6 970 | R18 907 |
| *Annualised #Assuming R1,000,000 invested Source: ProfileData | ||||||
| As at 31 July 2023 | GBP | USD | EUR | ||||||
| 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | |
| IIP – Income Growth Portfolio | 3.8% | 10.0% | 9.4% | 9.6% | 9.2% | 8.9% | 1.6% | 11.8% | 10.2% |
| *Annualised Gross of Investment Management Fee Source: Bloomberg | |||||||||
| As at 31 July 2023 | Total Return | Income Produced# | ||||
| 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | |
| International Real Estate Feeder Fund (A) | -2.9% | 3.5% | 5.5% | R30 155 | R86 046 | R167 126 |
| Sector Average (Global – Real Estate – General) | -3.0% | 3.0% | 6.3% | R12 132 | R35 433 | R74 069 |
| *Annualised #Assuming R1,000,000 invested Source: ProfileData | ||||||
| As at 31 July 2023 | GBP | ||||||||
| 1 year | 3 years* | 5 years* | |||||||
| First World Hybrid Real Estate plc (A) | -9.5% | 5.8% | 5.4% | ||||||
| *Annualised Gross of Investment Management Fee Source: Marriott | |||||||||
| As at 31 July 2023 | Total Return | Income Produced# | ||||
| 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | |
| Property Income Fund (A) | 0.3% | 11.1% | -4.7% | R68 985 | R231 734 | R238 301 |
| Sector Average (SA – Real Estate – General) | 1.3% | 12.0% | -3.4% | R64 632 | R219 063 | R231 993 |
| *Annualised #Assuming R1,000,000 invested Source: ProfileData | ||||||
| As at 31 July 2023 | Total Return | Income Produced# | ||||
| 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | |
| Balanced Fund (A) | 7.2% | 6.0% | 4.6% | R48 780 | R130 524 | R202 257 |
| Balanced Fund (C) | 7.8% | 6.6% | 5.2% | R54 506 | R148 093 | R230 926 |
| Sector Average (SA – Multi Asset – High Equity) | 12.3% | 11.0% | 7.7% | R31 837 | R87 579 | R142 852 |
| Essential Income Fund (C) | 4.7% | 8.7% | n/a | R68 652 | R211 621 | n/a |
| Sector Average (SA – Multi Asset – Flexible) | 10.1% | 11.9% | 6.7% | R33 065 | R94 176 | R159 958 |
| International Growth Feeder Fund (A) | 7.6% | 4.9% | 10.6% | R20 267 | R55 503 | R126 891 |
| Sector Average (Global – Multi Asset – Flexible) | 16.0% | 5.7% | 9.5% | R2 319 | R5 222 | R11 676 |
| Worldwide Fund (A) | 9.3% | 5.5% | 8.3% | R32 662 | R76 476 | R139 169 |
| Worldwide Fund (C) | 9.9% | 6.1% | 8.9% | R38 492 | R93 832 | R172 299 |
| Sector Average (Worldwide – Multi Asset – Flexible) | 15.1% | 7.9% | 8.4% | R14 074 | R29 145 | R55 067 |
| *Annualised #Assuming R1,000,000 invested Source: ProfileData | ||||||
| As at 31 July 2023 | GBP | USD | EUR | ||||||
| 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | 1 year | 3 years* | 5 years* | |
| IIP – Balanced Portfolio | 1.7% | 9.3% | 8.8% | 7.5% | 8.6% | 8.4% | 1.4% | 11.1% | 9.7% |
| *Annualised Gross of Investment Management Fee Source: Bloomberg | |||||||||
1 A dividend aristocrat commonly refers to a company that has increased its dividend for at least 25 consecutive years.
2 Income Growth Portfolios are our equity biased portfolios seeking to produce inflation-beating income and capital growth for more aggressive investors.
3 Income Yield Portfolios are our fixed income biased portfolios seeking to produce high levels of income for more conservative investors.
Please note that where the term ‘yield/yields’ is used, these are historic yields
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).
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