Absa equity fund rewards those with staying power

Recent market turbulence has spotlighted the classic choice between fight and flight. The winners appear to be those with staying power, according to the latest medium- and longer-term numbers from the unit trust industry.

A year ago, the JSE was in freefall and many investors stampeded for the ‘safety’ of cash. But new Morningstar statistics on unit trust performance to the end of 2009 indicate that some strategic investors with faith in general equity as a core portfolio component have done remarkably well.

The long-term resilience of quality domestic equity counters is illustrated by the performance of a ‘value’ option such as the Absa Select Equity Fund.

Morningstar figures show this general equity fund topped its class over five years with annualised returns of 22.72% while the annualised three-year return was 10.82%, another category-leading performance.

In comparison, the annualised five-year money market return was 8.7% while the return over three years was 9.8%.

Yet cash seemed a sound bet to some when the JSE plummeted in 2008 and through into the first quarter of 2009, coming down to the 18 000-point mark.

Between March and December 31, 2009, the market recovered to around 27 000 points, but by then many jittery investors were in no mood to take advantage.

“Market flight is traditionally followed by a period on the sidelines, compounding overall losses,” notes Errol Shear, Chief Investment Officer of Absa Asset Management.

“The result is significant erosion of wealth. In fact, recently released unit trust statistics confirm the wisdom of taking a longer view and committing a portion of one’s portfolio to equities, especially when the fund in question is constructed on a value model that emphasises enduring quality.

“A largely conservative offering like the Absa Select Equity Fund highlights the importance of consistency. When investors are skittish and markets are nervous, there’s a lot to be said for solid fund performance year in, year out.”

The fund has a pragmatic value-oriented investment style and seeks out-performance through selective stock-picking with the focus on quality companies, while some ‘sexy’ small-cap counters frequently liven up the mix. Specifically, the objective of the R745 million fund is to out-perform the JSE All Share Index by more than 2.5% a year.

Constant research and active management help to contain downside risk.

Shear adds: “Hopefully, recent performance figures will remind investors of the advantages of taking a core equity position in line with risk appetite and maintaining a judicious level of market exposure, even in uncertain times.

“After-tax returns on cash won’t counteract the long-term effects of inflation. Judiciously selected equities will.”