May 2023


The Good: Fortitude

At High Street our investment process is consistently applied while our investment style is determined by the respective fund in consideration. One of the oldest debates is between “value” and “growth” which we believe can only be applied loosely at best given the vast array of style classifications. That said, what is evident is the differentiation in annual performance between the two styles.


Source: Bloomberg & High Street Asset Management


Our local balanced fund is designed for retirement savers seeking to maximise offshore exposure and minimise local risk, within the limits as set forth in the Pension Funds Act. In recent years, it has had a bias towards “growth” stocks as this is where our process suggests the greatest upside exists. This allocation buoyed returns in 2020 which led to our local balanced fund being one of the top performing funds in category over a three-year period ending December 2021. Joy quickly turned to despair as the Fund underperformed the peer average by -23.4% in 2022 following “growth” underperforming “value” by the second biggest margin on record going back to 1979, primarily due to the current unprecedented interest rate hiking cycle which we have previously commentated on. For the year-to-date, the weakening of the Rand, coupled with a re-emergence of “growth” stocks, has seen the Fund’s mandate shine through by outperforming its peers by over 30% to regain a position in the top performing quartile since inception for similar funds.

Source: Bloomberg & High Street Asset Management


Short-term performance will no doubt swing with the vagaries of the market, however, the Fund will always adhere to its mandate of protecting the global value
of your retirement savings. Our thanks goes out to our investors who stomached the short-term volatility seen in 2022, it definitely escalated the balding process for our Chief Investment Officer.

The Bad: SA Inc

In February 2018, Cyril Ramaphosa took office with the promise of a “new dawn” for South Africa. Many took solace in the belief that this could mark the beginning of the rejuvenation of our country, our economy and the businesses that operate in within our borders. Unfortunately, more than 5 years later this has not been the case. The same problems still prevail.

This is exemplified by the performance of the South Africa’s domestic shares, or ‘SA Inc’, being companies who earn the bulk of their revenues locally. These companies are at the mercy of SA’s economic inefficacies and the risk premia investors place on our country. The table below shows the total return of the 4 biggest SA Inc companies, per each of the sectors they operate in.



Source: Bloomberg & High Street Asset Management, Data from: 01/01/2018 – 26/05/2023

These are household names whose products and services are ingrained in our daily lives. Yet their returns have been dismal. On average these names returned -11% in Rands and -44% in USD. Not one has managed to post a positive return in dollars. This level of wealth destruction is severe for those invested in these, especially over such a prolonged period. It also doesn’t help that the average price of goods and services in SA has increased by almost 30% in that time.

Yes, the JSE Allshare did manage to return 8.7% per annum in Rands over the period (although still negative in USD), but this return has largely been driven by the performance of the Rand-hedge names (Richemont, Bidcorp, miners etc). In general SA Inc has had torrid time as the weak state of our economy has weighed heavily on them.

While we would welcome a rebound in the SA economy, we will not bet on it. The fact that in 2001 there were 601 companies listed on the JSE, but now are just 348 highlights the difficulty of operating successfully in South Africa. At High Street we focus on growing your wealth as a global citizen. Our local balanced fund aims to achieve this through its differentiated ability to minimise South Africa specific risk via 95%+ Rand-hedge exposure.

& Powering the AI revolution

The emergence of generative AI has been one of the most forceful drivers of market returns so far this year. Hyperscale cloud vendors, cyber security merchants, and semiconductor manufacturers have all benefitted from the anticipated benefits of this revolutionary technology. However, beneath the excitement there remained the pressing question about whether this level of optimism was justified, or whether this was yet another bubble waiting to pop. That was until the release of Nvidia’s Q1 earnings…


Source: Statista

Nvidia, the world’s leading chip designer, rocketed up 24% and added $184bn to its market cap in what became the third largest single-day addition of value in US stock market history. Their impressive Q1 results came in well above expectations, however it was their outlook for the future that captivated market participants. Management indicated that they expected next quarter sales of around $11bn, more than 53% higher than what Wall Street analysts had been projecting.

This overwhelming evidence of physical demand helps put credence to the essential role Nvidia plays in powering the AI movement. Nvidia is currently the only company on the planet that can design the high-performance chips that can accelerate development and reduce training costs for AI “large language models”. Their H100 chip, for example, has five times as many transistors as Apple’s newest iPhones. Increased power comes at a higher cost, with specialised chips selling for as much as $40k each. Tesla CEO Elon Musk recently indicated that the minimum investment to set up generative AI capabilities sits at around $250mn of server hardware.

While competitors will no doubt invest heavily to avoid missing out on this huge potential revenue driver, Nvidia currently leads the rest by a wide margin. The opportunity ahead of Nvidia CEO Jensen Huang is enormous; their accelerated chips are becoming the clear preference for the data centre industry, and yet the majority of the $1 trillion market is currently unaccelerated. Industry insiders see Nvidia chips as being “among the most scarce engineering resources on the planet”, and demand for this crucial technology is unlikely to slow any time soon. High Street clients continue to benefit from exposure to this critical industry, both from direct exposure to Nvidia itself and also a number of other key players.


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