The end of 2011 was characterized by a market mood of despair in international markets. The consensus was that the European crisis could only end badly. For this reason many markets participants ended the year and went into the New Year very underexposed to risk assets in general and equities in particular.
We expressed a belief, as outlined in past notes to clients, that the European crisis would resolve positively and that the USA economy was starting to make a meaningful recovery. Events since mid- December have validated this view.
As expected, the past quarter has been good for equities, with the USA S&P Index increasing by 11.1% year to date, and the JSE overall index increasing by 4.96%. The local index broke into new high territory, even surpassing the pre-crash levels.
Both our funds participated in this rally with the Rezco Value Trend Fund increasing by 9.05% and the Rezco Prudential Fund increasing by 6.82% year to date.
Performance as at 23rd March 2012
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View going forward
We believe that the great rally of the past few months has priced in a fair amount of the good news in the short term.
High oil prices are a threat to the recovery in the USA in particular.
Corporate profits are at a record high in the USA, and may not be sustainable.
This has been a feature of the post crash environment, but if you believe in any kind of reversion to the mean, then they are set for a slow down. Corporate profits have been at the expense of wages.