Smart movers score equity 'own-goal
SUPPOSEDLY smart investment movers have scored a mid-year 'own-goal' and demonstrated the futility of trying to correctly time market entry and exit.
The assessment comes from STANLIB, the country's largest unit trust company and a consistent advocate of long-term equity commitments based on risk tolerances and strategic objectives.
The danger of the alternative trader-tactician approach was showcased in June, says Paul Hansen, STANLIB's Director of Retail Investing and strong believer in long-term market participation.
Says Hansen: "Early movers lost about 5% by exiting equity markets in early June as they missed a strong rebound.
"It was an own-goal. Those who sat tight scored. The fundamentals did not change, off-shore or on. If your portfolio accurately reflected your risk tolerance, there was no need to do anything drastic."
Three factors contributed to market nerves in late May and early June:
1. Sell in May and go away: the adage is based on historic data showing that JSE gains in October-May significantly outstrip the months from May to October while the global market goes negative from May to October and bounces back after that. The old saying often encourages May-June skittishness.
2. Rising bond yields: US 10-year bond yields rose from 4.6% to 5.2% a signal that the medium to long-term cost of money could be going up. British and European rates have also been rising. Equities usually soften in the face of interest rate strength. The Reserve Bank then raised local rates by 0.5%, reinforcing the fears of skittish investors.
3. Correction 'confirmation': Locally the listed property sector fell back 10% after registering total returns of 75% in 10 months. Other JSE sectors, notably financials and industrials (but not resources) also faltered. International equity markets retreated as well.
However, initial equity softness was not the beginning of a significant slide, but a pause for breath.
Says Hansen: "Within a week we saw a strong rebound. After a 5% fall, the German Dax jumped back into record territory. In the US, the Dow had its biggest three-day jump in three years. Japan hit a seven-year high. Hong Kong and South Korea hit record territory and the JSE came back strongly.
"In the 12 months to mid-June, the JSE gained 63% time for a pause, but no reason for a wholesale retreat as the economic fundamentals remain strong.
Internationally, the picture is similar. Trade is growing. Company earnings are up. The US economy shows new proof of resilience, with consumer spending up 4% year on year.
Hansen asks: "Why sell shares in good companies or offload equity-based unit trusts in the face of positives like these?
"It was hardly surprising then that Anglo American and Billiton reached record levels in both sterling and rand-terms.
"Sitting tight looks sluggish and complacent, but taking your time year after year is the smart thing to do. The tortoise outperforms the hare in fairy stories. It can happen in equity markets as well." Just because a bull market is over four years old does not necessarily mean its almost over. The key is that it is arguably still undervalued.
