Worth R100,000 after five years in SA upper and lower funds

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A recent Moneyweb analysis showed that investing R100,000 in the country’s largest equity funds in November 2016 would have yielded widely divergent results.

After five years, that same R100,000 would have been worth as much as R236,730 in the CoreShares S&P 500 unit trust or as little as R119,540 in the Old Mutual Investors Fund.

Read: What R100,000 is worth today in SA’s biggest equity funds five years ago

This may not seem like much in absolute terms, but what if that lump sum was R1 million? This would be the difference between R2.4 million and R1.2 million. It grabs people’s attention!

The initial exercise only considered mutual funds with more than R10 billion in assets under management according to data from the Association for Savings and Investments in South Africa (Asisa) at the end of June 2021 But what if we considered all funds?

But what if you are lucky enough to have invested R100,000 in one of the top 10 mutual funds, period? Conversely, what would happen if you invested in one of the 10 worst performing funds since 2016?

The value of hindsight

Critics will point out that this exercise is retrospective and of no use to any investor now.

That may be true, but what this analysis proves is that returns over a relatively short time horizon (five years is do not long) can be strongly influenced by cyclicality within and between sectors.

The rand-dollar exchange rate over the specific period will also be a determining factor; if the rand has weakened over the five years, there will be a boost to the performance of overseas assets (and vice versa).

In the five years from November 30, 2016, the rand is 15.5% weaker against the dollar. Put simply, any money invested in the US should therefore have returned at least that amount. Anything less means that the performance of the underlying asset(s) would have been negative. Yet there are many rand-denominated global equity funds that have significantly underperformed even hard currency returns.

What the best funds have in common

There are clear commonalities among the top performing funds over the past five years.

Most resource or commodity funds did well, as did all funds focused on blue-chip US technology stocks (or even the US market in general, given the dominance of this sector).

A R100,000 lump sum in the best performing investment fund since November 2016 – Emperor IP Global Equity Fund – would be worth over R364,000 today. That’s a remarkable performance, and over 100 percentage points better than the best big funds (264% versus 156% for the CoreShares S&P 500).

Like the Emperor fund, other top performers benefited from stock selection (Emperor is overweight IT and communications services, which together account for two-thirds of the fund’s holdings. For the Anchor BCI Global Equity Feeder Fund, the allocation to these two sectors add up to 54%.) Much of the outperformance of the Emperor and Anchor funds has occurred in the past 18 months, i.e. since the onset of the coronavirus pandemic. Covid-19.

Read:

The best performing global equity funds available in South Africa
How This Balanced Fund Returned Twice Its Benchmark

There are two index trackers (as well as a “dynamically managed passive fund”) in the top 10.

Top 10 mutual funds over five years – lump sum of R100,000 invested

Value after five years To return to
Emperor IP Global Equity Fund R364 222 264%
Coronation Resource Fund R341 656 242%
SIM Resource Funds R336 834 237%
Ninety One Commodities Fund R297 985 198%
Mining and Resources Fund Nedgroup Investments R292 890 193%
Anchor BCI Global Equity Feeder Fund R288 393 188%
Sygnia 4th Industrial Revolution Global Equity Fund R282 266 182%
Sygnia Itrix MSCI US Index ETF R260 651 161%
CoreShares S&P 500 ETF R256 022 156%
BCI BlueAlpha Global Equity Fund R247 571 148%

* Class A or R funds (for retail investors) used when there is more than one class

* Data from FundsData as of November 30, 2021

Although there are four resource/commodity funds in the top 10, there are divergent performances between the funds.

A lump sum of R100,000 in the Coronation Resources Fund would now be worth nearly R342,000, compared to R292,900 in the Nedgroup Investments Mining & Resource Fund.

The top four resource funds – all of which are in the top 10 funds overall – all beat the Satrix Resi ETF, which returned 138% over five years. (It should be noted that the worst performer among these funds, the Momentum Resources Fund, has returned 100% over the past five years.)

At the other end of the scale, funds focused on local financial stocks have significantly underperformed over the past five years.

The Satrix FINI ETF returned 13%, showing how poorly the financial fund Sanlam Investment Management (4%) and the financial fund Coronation (3%) performed.

In contrast, the Nedgroup Investments Financials fund (managed by Denker Capital) returned 24%, just above inflation (at around 23%) over the period. The return of the other financial fund in South Africa, the Momentum Financials Fund, is 17% over the past five years.

This and the starkly different performance of resource funds illustrates once again how critical stock picking is in a small investment universe such as the local market. By focusing on a specific sector and therefore on an even more restricted universe, these choices could end up having a disproportionate impact.

It also shows the risk of investing in a specific sector, especially as a primary investment strategy.

Top 10 mutual funds over five years – lump sum of R100,000 invested Value after five years To return to
SCI First Avenue Focused Quality Equity Fund R107 054 7%
Marriott Real Estate Equity Fund R106 815 7%
Allan Gray-Orbis Global Optimal Fund of Funds R104 374 4%
SIM Financial Fund R104 041 4%
Colourfield BCI Income Fund 2 R103 781 4%
Standard Bank Namibia Flexible Property Income Fund R103 071 3%
BCI Harvard House Equity Fund R102 927 3%
First Avenue Sanlam Collective Investment Fund R102 909 3%
IP Triathlon Global Feeder Fund R102 811 3%
Coronation Financial Fund R102 653 3%

* Class A or R funds (for retail investors) used when there is more than one class

* Data from FundsData as of November 30, 2021

As in the previous exercise which involved the largest funds in the country, the difference between a hypothetical lump sum of R100,000 and the value of that investment in a fund today may not seem so large.

But suppose the lump sum was R1 million… suddenly the difference between R3.6 million and R2.6 million – or worse, R1.07 million – is indeed very significant .

It is concerning that of the 993 funds available in South Africa that have a five-year track record, only 101 have outperformed the local Top 40 index (various Top 40 tracker/passive funds available in the market have generated returns of approximately 69-70% over the last five years). One could describe these probabilities as “not great”. Of the 101, only 19 were do not offshore funds (and that includes six of the seven available resource funds).

Surprisingly, one in 11 funds (9% or 87) did not beat inflation (!) over the five-year period.

With an ever-growing choice of local funds — there are more than 1,400 funds, according to FundsData — fund selection is arguably more important than ever. And for the average investor, knowing what investment strategy is followed and exactly what you are investing in is crucial. It’s probably not something one should just “outsource” and ignore.

Update: An earlier version of this article included BCI Multikor Moderate Fund of Funds and Imalivest Sanlam Collective Investments WW Equity Fund in the five-year performance table due to a data error. Both of these funds have been around for less than five years and therefore should not have an IRR figure.

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