Year-to-date Value is still the best performing factor, although in the third quarter it added little outperformance as the Dividend Yield sub-factor underperformed. Earnings Yield and Book-to-Price added positively. For the quarter, Momentum was the best-performing factor followed by Low Volatility. Locally, Value still leads the way although it was fairly flat during Q3 from a long-short return spreads perspective, and Momentum continued to struggle. Quality remained out of favour due to underperformance from Low Vol stocks.
Locally, Earnings Revisions (-30.6%) showed negative returns through the quarter while Price Momentum (3.5%) contributed positively. Price to Book (6.7%), Dividend Yield (1.6%) and Price to Cash Flow (0.9%) did well while Earnings Yield (-9.3%) lagged performance through the quarter, resulting in Value underperforming slightly for the quarter (-0.1%). Growth (17.1%) again showed positive returns for the period, while Profitability (-10.7%) and Leverage (-17.1%) continued to lag, causing Quality to be one of the underperformers. Local indices were negative and Low Beta (-8.9%) and Low Vol (-10.6%) underperformed in Q3.
Vaccinations in emerging markets picked up pace since the beginning of the year, but trailed behind developed markets. This led to a continued uncertainty regarding the spread of Covid-19 and an emergence of new variants, caused by slow vaccination rates and people’s hesitancy to get the jab. As a result, emerging markets fell during the quarter, while developed markets were fairly flat. Local equities were up in July but lost that performance through August and September, ending the quarter negative. For Q3, returns were mixed with the MSCI World Index giving -0.01%, the MSCI Emerging Markets Index -8.1% and the MSCI USA Index 0.3% in net US dollars.
Locally, the Rand weakened against the Dollar in Q3. For the full quarter, the Rand depreciated by 5.6% to the US dollar, closing at R15.11 to the greenback, R20.31 to the pound and R17.49 to the Euro. The South African Reserve Bank (SARB) again unanimously voted to keep its repo rate unchanged at 3.5% during its September meeting, as was expected. There was still uncertainty regarding Covid-19 in South Africa, but the SARB held rates to support South Africa’s economic recovery as inflation was being contained within their target range. Forecast inflation for South Africa was revised up to 4.4% from the previous 4.2%, while President Cyril Ramaphosa eased lockdown restrictions to Level 1 as the country prepared to go to the voting stations in November.
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