finweek

Economy hampers unit trust performance

Leon Kok is an independent writer on public policy and investment markets. (Picture: Supplied)
Leon Kok is an independent writer on public policy and investment markets. (Picture: Supplied)

We live in hope that the next two or three years will be infinitely better for South African investors, especially those whose retirement savings are heavily invested in unit trusts.

At present many may be inclined to believe that with the JSE hitting new highs, they’re on significantly better ground than they were, say, three or five years ago.

Not so, a random analysis of the unit trust industry’s three-year performance record would suggest. In fact, in real terms (taking inflation into account), many investors are considerably worse off than they were some years ago.

The low-growth trap that we’re in has been particularly highlighted by finance minister Malusi Gigaba’s Medium-Term Budget Policy Statement in October.

There can be no escape from this until, at least, a more enlightened political and policy certainty is achieved, supported by a dramatic improvement in domestic and international business confidence.

Below, a “ready reckoner” for unit trust investors to gauge where they may currently stand.

GLOBAL GENERAL EQUITY

Top 10 average 3-year annualised return: 13.51%

No. 1-rated fund and comparable nominal return: Absa Global Feeder Fund, 15%

Funds we like: Old Mutual Global Equity, Allan Gray-Orbis Global Equity Feeder, Stanlib Global Equity, Coronation Global Opportunity Equity, Investec Global Franchise and PSG Wealth Global Creator.

GLOBAL MULTI-ASSET FLEXIBLE

Top 10 average 3-year annualised return: 10.33%

No. 1-rated fund and comparable nominal return: MI-Plan Global Macro – B5, 14.81%

Outlook: Good. The global economy has strengthened significantly this year and expanded at a strong 3.8% annualised growth in the second quarter. Short-term upside momentum is set to continue.

Funds we like: PSG Global Flexible, Marriott International Feeder and Foord Feeder R.

MISCELLANEOUS EMERGING MARKET (EM) FUNDS

Top 3 average 3-year annualised return: 3.7%

No. 1-rated fund and comparable nominal return: Old Mutual Global EM, 7.48%

Outlook: Long-term prospects are particularly alluring relative to developed markets, given the EMs’ attractive demographic dynamics. In addition, EM equities trade at about a 30% discount to developed markets on both a price-to-earnings and price-to-book basis.

Funds we like: Old Mutual Global EMs, Coronation Global EM Flexible and Stanlib EM.

SA GENERAL EQUITY

Top 10 average 3-year annualised return: 7.19%

No. 1-rated fund and comparable nominal return: Anchor BCI Equity-A (10.19%)

Outlook: A market rerating is most unlikely, given the current dire fiscal situation, lower economic growth, underperformance of state-owned enterprises (SOEs) and the likely negative impact of ratings agencies.

Funds we like: PSG Equity, Investec Equity, Allan Gray Equity, Coronation Equity, Prudential Equity, Prudential Dividend Maximiser and Old Mutual Managed Alpha Equity.

SA LARGE CAP

Top 10 average 3-year annualised return: 3%

No. 1-rated fund and comparable nominal return: Absa Large Cap, 4.65%

Outlook: Same as previous category.

Funds we like: Most funds in this category are Top40 Index proxy funds.

SA MID AND SMALL CAP

Top 7 average 3-year annualised return: 2.1%

No. 1-rated fund and comparable nominal return: Nedgroup Entrepreneur, 6.61%

Outlook: Same as previous category.

Funds we like: Nedcap Entrepreneur, Old Mutual Mid & Small, Coronation Smaller Companies and Investec Emerging Companies.

SA HIGH EQUITY (BALANCED FUND)

Top 10 average 3-year annualised return: 7.99%

No. 1-rated fund and comparable nominal return: Centaur BCI Balanced-A, 9.17%

Outlook: Same as previous category.

Funds we like: Investec Managed, Investec Opportunity, PSG Balanced, Allan Gray Balanced, Old Mutual Balanced A and Coronation Balanced Plus.

SA INCOME

Top 10 average 3-year annualised return: 8.6%

No. 1-rated fund and comparable nominal return: Fairtree Flexible Income Plus Prescient, 9.66%

Outlook: Could be better than equities for the next year or so.

Funds we like: Fairtree Flexible Income Prescient, Coronation Strategic Income, Efficient BCI Fixed Income, PSG Diversified Income and Investec Diversified Income.

SA LISTED PROPERTY

Top 10 average 3-year annualised return: 16.2%

No. 1-rated fund and comparable nominal return: Absa Equity Property, 24.87%

Outlook: May well outperform SA equities, especially as local property companies become more globalised, invest offshore in direct property, and international property companies opt for dual listings.

Funds we like: Absa Equity Property, Catalyst Property Equity, Investec Property Equity, Stanlib Property Income and Prudential Enhanced SA Tracker.

SA RESOURCE FUNDS

Top 9 average 3-year annualised return: -5.7%

No. 1-rated fund and comparable nominal return: NewFunds S&P GIVI SA, 2.77%

Outlook: Mining is likely to continue along its roller-coaster ride. This is a highly complex and diverse landscape that ranges from talk about better international commodity prices and stronger balance sheets to the Chinese looking to reduced demand for steel and aluminium.

Further, local mining is being pounded by government’s reckless BEE policies and the consequent hostile relations between the industry and mineral resources minister Mosebenzi Zwane.

Funds we like: Old Mutual Mining & Resources, Coronation Resources and Investec Commodity.

Leon Kok is an independent writer on public policy and investment markets.

*All calculations made on the average annualised returns, using Profile Data figures up to 30 June 2017.

This article is part of the December 2017 FundFocus survey, which appeared in the 30 November edition of finweek. Buy and download the magazine here.

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