Coronation Balanced Plus

PERFORMANCE SNAPSHOT

The Fund returned 5.3% for the quarter (Q3-25) and 17.3% year-to-date (YTD), supported by a significant allocation to equities and pleasing alpha offshore. The Fund has performed well over meaningful periods, both in absolute terms and relative to the peer group.

FUND POSITIONING

Having risen steadily over the last two years, the gold price rose 17% in the third quarter to an all-time high. The gold price has now gained a material 47% YTD as investors question the US dollar’s status as global reserve currency and seek a viable alternative. Concerns include growing geopolitical tensions, the weaponisation of the dollar-based global payments system, increasingly unpredictable government policy, a highly indebted sovereign, and challenges to the Federal Reserve’s independence. Growing gold purchases by both central banks and retail investors drove rapid appreciation in the gold price.

Global equities: US leadership, China value, EM breadth

Markets rose despite concerns of tariff disruption and slower growth. The MSCI World returned 7% in USD for the quarter (+17% YTD). Liberation Day tariffs, whilst disruptive to supply chains, have yet to cause the feared inflation or growth slowdown. The S&P 500 Index rose 8% in the quarter (+15% YTD) on the back of a thus-far resilient US economy and surging investment in artificial intelligence (AI). The additional global equity allocation made by the Fund in April has generated good returns on the back of market strength and strong alpha. We have trimmed the position but continue to see plenty of stock-picking opportunity in our well-diversified global basket of shares.

AI leadership sits at the heart of USC-hina rivalry, with the US’s chip ban on exports to China designed to frustrate Chinese efforts. China is delivering impressive innovation across a range of industries and is leading in areas such as clean energy, battery storage and electric vehicles. Many Chinese companies trade at attractive valuations. The Fund has selective exposure to leading Chinese businesses, primarily within the technology sector.

Emerging markets performed strongly (+11% Q3-25, +28% YTD). A weaker US dollar provided further support to these returns (with the US Dollar Index down ~8% YTD). Despite this recent strength in emerging markets, a weak decade prior to this means they continue to trade cheaply. The Fund has slightly increased its allocation to emerging market equities. The exposure is diversified across geographies and industries.

Fixed income & credit: where we’re allocating

The Bloomberg Global Aggregate Bond Index (USD) rose a more muted 1% during the quarter (+8% YTD). US bond yields benefited from expectations of further rate cuts by the Fed. The One Big Beautiful Bill Act, signed early in the quarter, is expected to widen the US deficit further. This will increase funding needs. High levels of sovereign indebtedness, combined with a lack of political will to rein in deficits, remain a challenge across many developed markets. The Fund continues to have no exposure to developed market sovereign bonds, which we believe offer insufficient return given the risks.

The Fund has maintained a holding in a basket of offshore credit bonds, which offer good diversification across sector and geography, whilst delivering an attractive USD yield. This is a compelling alternative to the sovereign and economic risks inherent in South African (SA) government bonds, as well as the narrow credit spreads in our domestic market. Given the breadth of opportunities in global equity and global credit, we continue to make full use of the Fund’s offshore capacity.

In SA, the FTSE/JSE All Bond Index rose 7% in the quarter (+14% YTD) on the back of improved terms of trade (aided by soaring metal prices) and low inflation. The SA Reserve Bank has signalled a desire to permanently lower the inflation target to 3% (from a 3-6% range). The rand rose 9% YTD relative to a generally weaker dollar. The rand's strength and the low oil price should support further interest rate cuts.

SA economic growth remains poor. Despite low inflation and some interest rate cuts, consumer demand has disappointed. An exception to generally weak consumer demand has been the explosion in online gambling, facilitated by increased ease of access. This unproductive spending is concerning, given that little lasting benefit flows to either the consumer or the local economy. Our base case is a sustained low-growth environment, given SA’s structural impediments to growth. Poor service delivery and challenged infrastructure weigh on the cost of doing business. Deteriorating educational outcomes undermine productivity. Factors such as these are eroding competitiveness. Attempts to intervene are yielding some results in rail and electricity, where performance has improved from recent lows. However, the muted economic growth outlook means debt-to-GDP is likely to continue deteriorating over the longer term. Given these longer-term concerns, the Fund remains underweight SA government bonds.

SA equities: global listings and domestic winners

The Fund’s preferred domestic asset remains SA equities, which offer decent medium-return prospects. The FTSE/JSE Capped Shareholder Weighted Index (CSWIX) rose 13% during the quarter, bringing YTD performance to 31%. Precious metal miners yet again contributed the bulk of these returns with the Resources Index rising 47% (now up a staggering 105% YTD). More subdued returns were on offer elsewhere this quarter, with the Industrials Index up 4% (+20% YTD) and financials (with higher domestic exposure) flat for the quarter (+0.3% Q3-25,+7% YTD).

Within SA equities, the Fund has sizeable exposure to the global stocks listed locally. These holdings are both independently attractive and provide diversification away from a challenged domestic economy. The largest amongst these include Naspers, Quilter, and Richemont. In Naspers, we have high conviction in the prospects of its core Tencent investment. Tencent’s gaming and advertising businesses are growing strongly, whilst fintech is picking up. This topline growth is driving widening margins. At a Naspers/Prosus level, investors benefit from an additional pick up from the accretive share buyback programme. Quilter benefits from structural growth in the UK retail wealth management market. Its investment in its platform is generating good returns as it steadily gains market share. Management is astute and well poised to continue compounding these gains.

We have previously discussed the focus within the domestic stock universe on picking winning franchises that can thrive despite a tough economy. We remain committed to this strategy as the low-growth economy drives a widening gap between local winners and losers. Our list of winners remains unchanged, and includes businesses such as WeBuyCars, PSG Konsult, ADvTECH, Shoprite, and Capitec. All came through the results season demonstrating volume share gains in a tough economy. Growing scale is reducing the cost of customer acquisition and the cost to serve. High levels of reinvestment should enable these businesses to compound earnings ahead of the market in the years ahead.

Resources: gold and PGMs

The Fund has held an underweight position in the resources sector for some time. A meaningful part of this is in the gold shares, which have benefited from a rapid rise in the metal price over the past 12 months. This underweight has detracted from performance. In these uncertain times, there is a wide range of possible outcomes, making it easy to construct compelling bear and bull cases. Whilst the current gold price trades at record highs, we could see meaningfully higher gold allocations across global portfolios in the years ahead. Our holdings in gold shares recognise the possibility of such an outcome. However, our base case remains a decline in the gold price over the long term. Further considerations include the fact that gold miners have historically been poor at returning capital to shareholders over time, and that costs have compounded at high levels in periods in which the gold price was strong. We remain concerned about the capital losses that shareholders in gold shares would incur if some of the froth in the sector dissipates. Hence, we remain cautious.

The Fund built a position in the platinum group miners in the second half of 2024. The investment was premised on tighter supply-demand fundamentals. This has delivered good returns over the period. We have taken some profit in the sector.

Property: SA listed exposure

The FTSE/JSE All Property Index, which is benefiting from lower interest rates, rose 5% for the quarter (+12% YTD). The Fund has retained its holding in certain SA property stock picks despite their decent returns. At these levels, the counters still offer attractive total return prospects (aided by the high dividend yields) and diversification (away from domestic sovereign bonds).

OUTLOOK

The Fund remains focused on generating compelling long-term risk-adjusted returns. It continues to have a meaningful allocation to equities, given the attractive stock-picking opportunities we see in markets both locally and internationally. Exposure to offshore assets remains high, given the breadth of the investment opportunity and the protection it offers against a weak domestic economy. We believe the high offshore exposure, combined with a high equity allocation, will serve the Fund well in delivering on its long-term return expectations.  

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