Unit trust roundup: the rand saves the day for local investors

The long drought for domestic investors invested through the rand in foreign fixed-interest funds at long last ended in the September quarter with the Foreign Fixed Interest Bond subcategory returning 18,2%.

According to Ryk de Klerk, executive director of PlexCrown Fund Ratings, global investors sought refuge in bond markets due to anxiety caused by the deepening of the sovereign debt crisis. Yields on government bonds, and especially the long end, dropped sharply as bond prices rallied.

The risk aversion also led to a significant sell-off in the external values of currencies of emerging economies, which saw the rand depreciate by 16,5%.

Nedgroup Investments Global Cautious Feeder Fund was the star performer for the three months ended 30 September with a return of 22,5% with income reinvested. STANLIB Global Bond Feeder Fund was runner-up with 21,8%.

The two top-performing categories are both foreign fixed-interest funds, followed by the two gold and precious metal funds that have been classed in a separate sub-category.

“While the initial surge in the gold price led to a sharp increase in gold share prices, the two gold funds with an average return of 8,9% with dividends reinvested failed to match the 19,5% return of the FTSE/JSE Gold Index,” De Klerk said.

According to De Klerk, global equity markets as measured by the MSCI World Index had their worst quarter since the 2008 financial crisis. “The MSCI World Index lost 17,1% in US dollar terms and all gains over the past year were erased, with the index trading 6,4% lower than a year ago.”

Emerging markets were even worse off as the MSCI Emerging Market Index retreated by 23,2% over the quarter and 18,1% over the past 12 months. The FTSE/JSE All Share Index fared somewhat better for foreign investors, losing 21,3% in US dollar terms during the quarter and 10,9% over the past 12 months.

De Klerk said the rand’s loss of 16,5% against the US dollar and 9,5% against the euro heavily cushioned domestic investors’ savings though. The FTSE/JSE All Share Index returned -5,8% for the quarter and 3,6% for the year with income reinvested as rand hedges such as dual-listed foreign equities and commodity-related stocks came into their own.

According to De Klerk, sector rotation had a marked impact on funds in the General Equity sub-category. Returns ranged from 0,1% in the case of the Marriott Dividend Growth Fund to -9,0% in the case of 27Four Active Equity Fund.

“It is important to note that more than two thirds of the funds in the General Equity subcategory fared better than the FTSE/JSE All Share Index. The average return was 1% higher than that of the index.

“In rising markets, some managers of funds in the general equity sector have been criticised for underperforming the market, but this time round their worth was shown as they limited the damage resulting from a fall in equity prices,” De Klerk said.

Fixed Interest subcategories were the best-performing categories on the domestic front in the quarter ended 30 September, with the Domestic Fixed Interest Bond subcategory leading with a return of 2,6% with income reinvested. The Resources and Basic Industries subcategory returned an abysmal -11,2%, with Old Mutual Mining and Resources Fund with -14,8% being the worst-performing fund for the quarter. The second worst-performing subcategory was Large Caps with -6,5%.

The Foreign Fixed Interest category was also the top-performing category over one year, with Marriott Global Income Fund ranking as the best-performing fund with 21,7%. All categories, apart from Domestic Equity Financial with its -4,3% return, produced positive returns over the year.

Over three years, the Domestic Real Estate General category topped the charts with 15,2% per year with income reinvested. The best fund over the three-year period was the 36One Target Return Fund with 20,1% per annum.

Despite being runner-up in the past quarter and year, the Foreign Fixed Interest Varied Specialist category fared the worst over three years with -1,4% per annum.

The Domestic Real Estate General category was the best-performing subcategory over the past five years with 14,6% per year. The Prudential Enhanced SA Property Tracker Fund was the top-performing fund over the same period with 17,4% per year.

De Klerk mentioned that investors and investment advisors should refrain from taking drastic measures such as switching funds and asset classes simply because they performed the worst or the best. “Most of the time the funds and/or asset classes that produce the worst losses are also likely to perform the best when the equity market recovers from a deep bear market.

“Long-term investors who invest in unit trusts on a regular basis also benefit from significant declines in equity prices through rand cost averaging, as their monthly investments buy more units at cheaper prices.”

De Klerk also pointed out that the best-performing subcategories for the September quarter are also some of the worst performing subcategories over the long term, especially over 10 years [see TABLE 3].

“The market has again taught us to regularly assess risk tolerance and ascertain whether the overall risk of your retirement portfolio matches your risk tolerance – the same as matching your assets with your liabilities,” De Klerk said.

TABLE 1

Best/Worst category returns

TABLE 2

Best/Worst fund returns

TABLE 3

Return over 10 years with income reinvested