Globally, Value detracted from performance, with investors falling out of favour with cheaper stocks. Quality (Profitability) was the best-performing factor for the quarter, while Momentum underperformed. Locally, Momentum was the best-performing factor, followed by Value from a long-short return point of view. Quality remained out of favour, followed by underperformance from Low Vol stocks.
Earnings revisions (56%) showed a strong positive return through the quarter as did Price Momentum (4.3%). Price to Book (2.3%) and Price to Cash Flow (5.5%) delivered well, with Dividend Yield (-6.6%) and Earnings Yield (-4.6%) detracting from Value. Growth (10.2%) showed positive returns, while Profitability (-8.1%) and Leverage (-4.8%) continued to lag. Quality also underperformed in Q2. Stocks with Low Beta (-8.3%) and Low Volatility traits (-5.9%) also underperformed.
Key events that impacted performance in Q2 2020
Stock markets across the globe posted positive returns for Q2 of 2021, continuing the equity rally from March 2020. Local equities were flat over Q2 as South Africa went back to Level 4 of lockdown amid the third wave of Covid-19 from the Delta variant. International markets experienced a positive quarter as vaccine rollouts accelerated in developed markets, and several highly vaccinated countries re-imposed stricter lockdown measures, indicating the virus’ impact may be felt for some time. For the quarter, the MSCI World Index (7.7%), MSCI Emerging Markets Index (5.1%) and MSCI USA Index (8.8%) all delivered positive returns in net USDs.
Locally, the SA rand strengthened against the US dollar in Q2, closing at R14.31 to the greenback, while ending the quarter at R19.75 to the pound and R16.96 to the euro. The SARB voted to keep its repo rate unchanged at 3.5% during its May meeting, confirming most analyst expectations. The Reserve Bank highlighted concerns of the economic impact of slow vaccine roll-outs and energy issues at Eskom. Forecast annual growth for South Africa was revised upward to 4.2% from the previous 3.8% (although this was before the third lockdown). The Reserve Bank forecast two possible interest rate hikes for the year.
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