How have equity funds fared?

Dr Prieur du Plessis, Plexus group chairman

Since the domestic equity market crashed last year, reaching a low on 20 November 2008, the FTSE/JSE All Share Index has recovered 52,5% as at 19 October 2009. Despite its climb the index is still 16,7% below its all-time high of 3 559,7 attained on 22 May 2008.

A study by Plexus Asset Management into how domestic equity funds have fared over this tumultuous period of market volatility reveals some interesting facts. According to Dr Prieur du Plessis, Plexus group chairman, on average all domestic equity fund sectors fell less than the market did between the May 2008 high and the November 2008 low. However, none has managed to achieve the same level of recovery from November 2008 to 19 October 2009 (see accompanying table).

Value funds provided the best downside protection during the 2008 crash and also managed the second best recovery on average. “For these reasons, the value funds sector was the only sector to achieve a positive return on average from the market peak in May 2008 to 19 October 2009. All other equity sectors are still more than 10% below the May 2008 high and have some work to do to surpass that point,” says Du Plessis.

“Of the 106 equity funds analysed, only 17 (or 16%) exceeded the All Share Index’s May 2008 high. Of these 17, eight are general equity funds, six are value funds and one is a large cap fund,” says Du Plessis.

The top three performers over this period were Discovery Equity Fund (15,7%), Investec Value Fund (14,5%) and Aylett Equity Fund (13,8%). Du Plessis points out that although these three funds did not achieve the best recoveries from the low to the high of the market, they were the top three as far as downside protection from the high to the low is concerned.

“Another fund that deserves mention is the Coronation Top 20 Fund. It is the only large cap fund that has managed to provide investors with a positive return (10,8%) over the same period,” says Du Plessis.

He points out that many of the funds analysed have an underweight position in mining and resources shares and thus probably made their respective highs in mid-2007, closer to when the FTSE/JSE Financial & Industrial Index peaked.

“With the exception of most of the large cap funds, these funds can invest across all sectors of the market. It therefore makes sense to measure their performances from the high and low of the All Share Index,” he says.

He points out that it is disconcerting that almost 30% of the funds analysed underperformed the All Share Index from the May 2008 high to 19 October 2009. Du Plessis believes this strengthens the case for investors to include some form of passive equity investment in their portfolios. “One should in particular consider passive investment funds, such as those that are compiled using fundamental indexing methodology,” says Du Plessis.

Source: Plexus Asset Management (based on data from MoneyMate).