Overview of unit trust returns for the quarter ended 31 March 2010

Dr Prieur du Plessis, Plexus group chairman

The year 2010 started off with most global stock markets delivering negative returns in January. According to Dr Prieur du Plessis, Plexus group chairman, nervousness returned to financial markets as scepticism about the sustainability of the economic recovery and the new bull market resurfaced.

“However, this was short-lived and global markets experienced a strong rebound during the latter half of the quarter. The overall sentiment of global investors once again improved and, with the exception of China, most major stock market indices delivered reasonable returns for the quarter,” says Du Plessis.

“The quarter was also characterised by earnings reports from many companies that surprised on the upside. This was a good indicator of not only a stabilising global economy, but also further expansion in most regions.”

The MSCI World Index ended the quarter up 2,7%. “This was mostly due to a great March during which the Index gained a very respectable 5,9%,” explains Du Plessis. “The MSCI Emerging Markets Index managed to obliterate its four-week decline of 12,7% from 11 January to 5 February 2010 and ended with a gain of 2,1% for the quarter. Most of the quarter’s gains came during March, which saw the MSCI Emerging Markets Index notching up a powerful 8,0%.”

The continued global economic expansion resulted in a decline in the capital value of mature-market bonds, with the JPM Global Bond Index yielding a return of -1,1% for the quarter. “Much of the damage emanated from the US during March, where the yield on the US 10-year Treasuries rose to 3,83%,” says Du Plessis. “The heightened appetite for riskier assets resulted in emerging-market bond yields declining, however, with the JPM Global Emerging Markets Bond Index yielding a return of 3,6% for the quarter.”

The domestic stock market followed the global trend with a negative start to the year, followed by a good rally during the second half of the quarter. “After a decline of just under 9% from the 11 January high to the 5 February low, the FTSE/JSE All Share Index yielding a total return of 3,9% for the quarter. Most of this can be ascribed to the strong March performance of 7,4%,” says Du Plessis.

The best-performing sector for the quarter was financials, with the FTSE/JSE Financial Index yielding a total return of 9,9%. “This was mostly due to positive monetary stimuli on the back of lower inflation, as well as an overall pick-up in consumer credit extension,” explains Du Plessis. The FTSE/JSE SA Industrial Index delivered a return of 4,4% for the quarter.

“The sub-par return of 2,1% from the FTSE/JSE Resources Index over the quarter can be ascribed to a very negative start to the year. The index posted a return of -6,4% in January and -16,3% from the 11 January high to the 5 February 2010 low,” says Du Plessis.

The decline in resources shares was due to a broad correction in commodity prices, as well as a strengthening of the rand relative to the US dollar. “While the CRB Commodities Index declined slightly in March (-0,5%), the Economist Metals $ Index showed an increase of 3,3%. Despite the rand’s continued strength, the FTSE/JSE Resources Index managed to yield a stellar return of 10,2% in March. This was most probably on the back of a 9,5% increase in the Baltic Dry Index – a measure of global bulk freight rates – which signifies an increase in demand for commodities,” he explains.

According to Du Plessis, the platinum price experienced an increase of 11,9% over the quarter, which boosted the prices of local platinum-producing companies. “The gold price, on the other hand, delivered a more modest return of 1,5% for the quarter.”

After a slow start in January, the local fixed-interest market ended the quarter on a strong note. The BESA All Bond Total Return Index delivered a return of 4,5% for the first quarter of 2010. “The good positive return was due mainly to a sharp decrease in the yield of longer-dated bonds,” says Du Plessis. “The All Bond 7-12 Year Index yielded a return of 5,6% while the All Bond 1-3 Year Index delivered a more modest return of 2,6%.”

“Not surprisingly, the best-performing unit trust sectors over the quarter were those that benefit from lower short-term interest rates,” says Du Plessis. The Domestic – Equity – Financial sector was ranked first with an average return of 10,2%. The second-best sector was the Domestic – Real Estate – General category with 8,3%.

The worst-performing sectors were the Foreign – Fixed Interest – Varied Specialist and the Foreign – Fixed Interest – Bond categories with -3,8% and -1,2% respectively. “This was due to higher mature-market bond yields (with corresponding lower capital values), extremely low money-market rates and the relative strength of the South African rand against other major international currencies.”

Over 12 months the best-performing sectors were the Domestic – Equity – Financial and Domestic – Equity – Value sectors with 55,7% and 52,3% respectively. As was the case over the quarter, the worst-performing sectors over the 12-month period were the Foreign – Fixed Interest – Varied Specialist and the Foreign – Fixed Interest – Bond categories with returns of -18,5% and -10,7% respectively.

The three-year and five-year charts are topped by the Domestic – Fixed Interest – Money Market and Domestic – Equity – Resources & Basic Industries sectors with 9,9% and 22,9% per annum.

The best-performing fund over the last quarter was the Grindrod Global Property Income Fund with a return of 11,9%, followed by the Coronation Financial Fund with 11,7%. The worst fund over this period was the Prescient Global Income Feeder Fund A1 with -7,4%.

The best-performing fund over the last 12 months was the RMB Small/Mid-Cap Fund A with a return of 63,8%. Over the last three years it was the Cadiz Equity Ladder Fund with 19,4% per annum, and over the last five years the Old Mutual Mining & Resources Fund A with 26,5% per annum.

Du Plessis says the strong recovery in global equity prices since the lows of March 2009 has been nothing less than astounding, and many investment professionals were surprised by the magnitude of the rally. “While the current bull market remains intact, albeit for the time being, any signs of a renewed slowdown in economic growth or earnings disappointments could trigger a pull-back in equity prices,” says Du Plessis.

According to Du Plessis, the major risk to global equity markets is a double-dip recession in Western countries due to China’s efforts to cool its economy and the emergence of the debt crisis in the eurozone.

“Global equity markets are likely to become more volatile as the probability of such a scenario increases. The secular bear market that started in 2008 will resume if such a scenario becomes a reality,” says Du Plessis. That said, the near-term outlook remains positive and we do not believe the time is right to underweight equities now.”

Best and worst sectors

Source: Profile Media

Best and worst funds

Source: Profile Media