Looking backwards

Balanced retirement fund portfolios continued their strong performance in the first quarter of 2005, but conditions are challenging for portfolio managers with stock selection expected to be key in 2005 – Absa Monitor.

“The past quarter illustrated the importance of stock selection and having a diversified portfolio,” says Francois Viljoen, manager of asset consulting, Absa Consultants and Actuaries.

“Having a broad exposure to different asset classes and sectors reduces the risk of being caught off guard by sudden sector rotation.”

“Nonetheless, all the portfolios in our survey continued to report strong performance and delivered excellent real returns to investors over all periods measured (1, 3, 5 and 10 years),” says Viljoen.

The first quarter of 2005 (January 1 to March 31) witnessed a strong reversal in the relative performance of the local equity sectors.

Although the Resource sector is still lagging the Financial and Industrial sectors over a 1-year period, the Resource sector strongly outperformed Financial and Industrial sectors in the first quarter, by more than 15%.

Most portfolio managers were still overweight in financial and industrial shares and did not participate in the strong sector rotation that occurred.

Stronger commodity prices, coupled with a 10% depreciation in the local currency, were the main drivers of the performance of the Resource counters. Rand weakness also supported the performance of international asset classes in rand terms.