Welcome to the Q4 review of Orion Investment Managers, during which the company experienced considerable and encouraging growth. The local asset and investment management companies owned by Orion are:

Cadiz Asset Management, which is a specialist local fixed-income manager.

Starfunds.ai, which is a unique, rule-based quantitative manager. Please note that in February 2025, the Stafunds.ai North America Fund of Funds will change its mandate and be named the Starfunds.ai Global Fund of Funds. The benchmark of the fund will be the MSCI World TR Index, denominated in USD and the change of fund name will be seamless with no client interaction required.

Accorn Investment Management is a long-only, equity and multi-asset manager. 

Palmyra Asset Management is focussed on local equity, property, and multi-asset funds.

Capita Asset Management manages long-only, equity and multi-asset funds.

Investin Asset Management, who manage a long-only, equity and multi-asset fund.

During Q4 we concluded an agreement with Anchor Capital, who from November 2024, provided a local equity model. We are in the early stages of sourcing another local equity provider to take our local advisors to five. I will provide more details on this next quarter.

International Personal Share Portfolio (PSP) Changes.

In December, an important update was made to the international PSP models for our clients invested via Canaccord and PCS Old Mutual. Due to the continued narrowness of the international markets, with the bulk of market growth still being driven by a small number of US shares, we decided to include the iShares Core S&P 500 ETF in all four of the international PSP models.

The specifics of this inclusion were as follows:

• International Flexible PSP Model 1: 20% iShares Core S&P 500 ETF
• International Flexible PSP Model 2: 25% iShares Core S&P 500 ETF
• International Balanced PSP Model 1: 12% iShares Core S&P 500 ETF
• International Balanced PSP Model 2: 15% iShares Core S&P 500 ETF

Please note that this change was not applied to any International PSPs where a Discretion Limitation Addendum (DLA) prohibits such adjustments.

The allocation of the iShares Core S&P 500 ETF is aimed at reducing the direct equity allocation within the portfolios while maintaining the overall equity weight in the four models. The inclusion of the ETF increases our international PSPs geographic allocation to the US without specifically upweighting any current direct equities to capitalise on the expected outperformance of the US stock market.

The inclusion of the S&P 500 ETF or any other ETF, together with the percentage allocation, will be reviewed periodically and may change depending on market conditions.

On behalf of the Orion Investment Managers Team, I would like to thank Warwick for the business invested in our funds during 2024 and we look forward to your continued support in 2025. 

We now provide a market overview

World markets ended 2024 on a mixed note as inflationary concerns and the impending Trump presidency loom in 2025.

US markets were the Grinch who stole Christmas in 2024 as they handed investors lumps of coal with the S&P ending 2.5% lower in December, the Dow weaker by 5.3% (its weakest December since 2018), while the Nasdaq edged marginally positive, ending the month higher by 0.5%. 

US Economic data for November saw the inflation number (CPI) rise to 2.7% YoY, with core CPI, which excludes energy and food, printing at 3.3% YoY. The Fed’s preferred inflation gauge, personal consumption expenditure (PCE), printed at 2.8% YoY in November, unchanged from the October print. At its final meeting of 2024, the US Federal Reserve again cut rates. 

UK markets ended December lower by 1.4%, reversing gains made in November. Inflation for November rose to its highest level in eight months, rising to 2.6% YoY, vs the 2.3% YoY print of October, while core CPI also printed higher at 3.5% YoY, up from the 3.3% YoY October print. On the policy front, the BoE kept rates unchanged with a 6-3 vote.

Major European markets ended the year on the front foot as both the Cac and Dax ended December higher by 2.0% and 1.4%, respectively. Headline inflation for the eurozone for November, printed at 2.2% YoY vs the 2.0% YoY print in October. Like its US counterpart, the European Central Bank also cut rates by twenty-five basis points, the fourth time in 2024, bringing its benchmark rate to 3.0%, while expressing concern about economic momentum against the backdrop of the ongoing political uncertainty in France and Germany. 

Asian markets ended December in the black as the Chinese stimulus measures introduced in September appeared to largely overcome persistent economic concerns. In China, both the Hang Seng and Shanghai composite were firmer by 3.3% and 0.8% respectively. Chinese inflation for November printed at a five-month low of 0.2% YoY compared to October’s 0.3% YoY. Core inflation accelerated from the October print of 0.2% to 0.3% in November. 

The Japanese market ended December stronger, up 4.4% and on the economic front, Japanese inflation in November showed a marginal increase from the October number, indicating potentially a sustained uptick, which could result in the Bank of Japan raising rates early in 2025. However, the BoJ kept rates unchanged at its last meeting of 2024, remaining cautious about the economic outlook for 2025.

South Africa 

Local markets closed lower by 0.5%, as resources continued to decline, with the resources index lower by 5.9%. This softening was on the back of weaker miners, especially coal miners. Other sectors produced a mixed bag, with industrials up by 2.2%, property down by 0.1%, and financials down by 1.6%. 

Domestically, headline inflation edged up slightly, recording 2.9% year-on-year in November, compared to 2.8% in October. This result, however, surprised the market, as consensus had projected a figure above 3%. Fuel prices remain the primary driver of the lower inflation currently observed.

Core inflation, which excludes the volatile food and energy categories, moderated further to 3.7% year-on-year, well below the South African Reserve Bank’s 4.5% midpoint target. Both headline and core inflation remain low, running significantly below the midpoint of the target range.

The Rand weakened in December, closing at USD/ZAR 18.81, as global risk appetite remained subdued. Reduced expectations for US rate cuts bolstered the US dollar, which was a key driver of the Rand's depreciation against the dollar during the month.

Strategic Asset Allocation

Our overweight exposure to South African nominal bonds was reduced to neutral and we shortened our duration to neutral relative to the All-Bond Index. Bond yields look attractive but had compressed to about 9.3% for the generic 10-year bond.

We remain constructive on property even after the property index’s strong rally in 2024, however, we did take some profits during Q4, and our new weight is 7% for our balanced mandates. Property fundamentals remain attractive as we move through the local rate cutting cycle. 

We remain positive on local equity and have maintained an overweight exposure. Our equity allocation is overweight industrials, underweight financials and resources relative to their JSE Capped Swix All Share Index weights.

Looking at our international asset allocation, we remain underweight cash even though we expect developed market interest rates not to be cut as aggressively as originally anticipated and our preference is global equities over bonds. 

We are neutral global bonds with the expectation of only two rate cuts in the US during 2025, probably only in the second half of the year. Considering this, we reduced our exposure to longer duration bonds (the 15–20-year bucket) and are now shorter duration when compared to our benchmark which is the Bloomberg Global Aggregate Index.

We remained neutral on international equity; however, we took the decision to increase our global equity exposure, from 28% to 30% for our balanced mandates and from 16% to 17% in our low equity stable mandates. We prefer exposure to DM over EM and remain relatively overweight to the US over Europe and the UK.

We remain focused on protecting our clients from permanent capital loss by investing in good quality businesses with strong cash-flow generation and low leverage, combined with more reasonably valued structural growth stories. 

Remember that markets can be volatile over the short-term, and as history has shown, those who are willing to be patient and invest for the long-term will be handsomely rewarded.

In the meantime, I wish everyone in the Group a highly successful 2025 and look forward to speaking to you in the coming weeks.