In April the average prudential balanced portfolio returned 1.95% (March: 1.95%). Top performer is Old Mutual (2.29%); while Investment Solutions (1.31%) takes the bottom spot. For the 3 month period, Metropolitan takes top spot, outperforming the ‘average’ by roughly 0.3%. On the other end of the scale EMH Prescient underperformed the ‘average’ by 0.8%.

Oil and the ALSI

Since our previous newsletter, the global economic and political environment has not changed. Prevailing trends are thus likely to continue.

One of these is the long-term close correlation between the SA ALSI and the spot oil price in Rand as depicted in the chart below, that became undone as from the middle of 2014. Does this represent a permanent delinking of the SA ALSI from the spot oil price or is this a temporary phenomenon? Well, unless the spot oil price has delinked from global commodity prices the close correlation will re-establish and we do not believe the oil price has permanently delinked from other commodities. As we know SA is a resources driven economy and commodities are driving the ALSI to a significant extent. An increase in global commodity prices will drive the ALSI. Global commodity prices and with this the spot oil price will have to rise substantially again to link up with the SA ALSI or the ALSI will have to decline substantially to link up with the spot oil price as the chart indicates.

Will the ALSI decline substantially to link up with the spot oil price or vise-versa? Considering that there is not much scope for the commodity prices and the oil price to decline, all having reached a trough that made many producers unprofitable and many to actually shut down. The risk of a further decline in commodity prices is thus remote while the likelihood of an increase is much higher, particularly as the US and other global economies are in the process of recovering which will lead to an increase in the global demand for commodities.