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May 2016 News

Dear Client

Investors in our unit trust fund of funds may have noted that commodity and resources funds have done substantially better than our fund of funds over the past few months. As the JSE comprises of a heavy weighting in resources the JSE has also been doing marginally better than our funds.

We do not think that it is a good idea at this stage to be over weighted in commodity and resources funds and that recent growth in these shares may not be sustainable. Commodity prices have correlated closely over the past 15 years with the price of US Dollar. The reason is simple, as commodities are priced in Dollar and when the Dollar is weak — the cost of purchasing commodities “for non–US buyers” becomes more affordable. This increases demand in the short term. We agree with Callan Williamson that the Dollar strength has been the key driver behind commodity shares performances to-date. There is little reflection on the underlying economies of the commodity markets and the resource shares which we feel still face headwinds.

Friendly greetings

Andre Delport

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