Avoid the JSE losers to build wealth in equities
You don’t need to pick winners in the share market to build your personal wealth. You can also enjoy substantial gains by avoiding the JSE losers.
The upside-down view of equity performance comes from Imara Asset Management South Africa, an Illovo-based fund manager and member of the pan-African Imara financial services group.
A study of capital growth for the 2014 year across the JSE Alsi Top 40 – the 40 largest stocks by market capitalisation – showed that the worst performers dragged down overall gains by 44%.
In the study, each counter received an equal commitment of 2.5% of available capital; a position that was left unchanged throughout the year.
Bruce Williamson, Chief Investment Officer at Imara Asset Management South Africa, points out: “Cut out the losers and the investor would have achieved solid capital appreciation of 15%. But factor in the losses recorded by the laggards and capital growth by this index by the end of 2014 was a much more modest 8.07%.
“However, you can secure double-digit capital growth simply by steering clear of companies and sectors that have the poorest prospects.”
Mining counters were responsible for a whopping 94% of the poor performance.
Among the big losers were mining holding company Assore (down 54.4% for the year), Kumba Iron Ore (-43.5%), Impala Platinum (-37%) and Exxarro (-27%).
At the other end of the scale, performance was lifted by the likes of Aspen (up 46.1% for the year), FirstRand (+38.4%), Barclays Africa (37.2%) and Tiger Brands (36.7%).
Williamson notes: “Over the year, 27 counters from the Top 40 went up and 13 went down.
“The effect of benchmark and sectoral factors was strongly evident. JSE benchmarks are traditionally skewed by our resource bias. A stock-picker who decided to remove that bias in 2014 would have been strongly rewarded.
“In contrast, significant losses would have been recorded by any fund manager or investor who decided sector rotation was about to kick in and favour resources. A big bet on these losers would have been seriously wealth-depleting.”
