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Resource-heavy equity unit trusts top in 2009

11 January 2010 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

Investors have endured a tough 24-months beginning January 2008. Since that time they’ve watched the worlds largest economies plough through economic recession, and slowly emerge from it. They’ve endured as every measure of global economic activity headed

In their Overview of Unit Trust Returns for the Quarter Ended 31 December 2009, Plexus Asset Management says that the “evidence of sustained global economic recovery is increasingly visible, especially in increasing demand and the resultant rising commodity prices.” Their report is underpinned by unit trust performance statistics supplied by Profile Media. The latest quarter was characterised by significant improvements in the Economist Metals Index (up 16%), platinum (up 13.3%) and Brent crude (up from $66 to $77/barrel). The oil price, often used as a proxy for economic activity, has since crept north of $80/barrel.

Best and worst domestic equity sectors

The resurgence in global metal prices prompted a swift turnaround in the FTSE/JSE Resources Index. The index returned 16.7% (on a total return basis) in the fourth quarter. Plexus Asset Management notes the resources index has improved 82.9% since its November 2008 low and is the top-performing local sector over one year. Impressive or not, we’re sure investors would refuse rather turn the clocks back to June 2008 when local resource stalwarts BHP Billiton (JSE: BIL) and Anglo American (JSE: AGL) were at record highs. Anglo American closed above R540/share on 23 June 2008 and, despite improving in leaps and bounds since November of that year, is only trading at R330/share today. BHP Billiton topped R321/share on 22 May 2008 and has only recovered to R245/share since.

Resource funds dominate 2009 unit trust performances. In Q4 2009, says Plexus Asset Management, domestic equity resources and basic industries was the best performing unit trust subcategory. This unit trust category topped the charts with an average 12.80% return over the quarter, and a total return of 37.9% for the year! The second to fifth best performing unit trust categories include worldwide equity varied specialist (+11.97%), domestic equity large cap (+10.27%), domestic equity value (+8.57%) and domestic equity growth (+8.43%). This equity bias remains in place on a six-month, 12-month and even five-year view.

Investors who remained conservatively positioned through 2009 will be less happy. Worst performing unit trust categories in Q4 2009 include domestic fixed interest money market (+1.79%), domestic fixed interest bond (+1.09%), foreign asset allocation (+0.24%), foreign fixed interest varied specialist (-1.75%) and foreign fixed interest bond (-2.25%). Fund movements in the collective schemes industry through 2009 suggest the majority of institutional managers timed the switch from cash and money market (conservative) investments back to equities correctly. For small private investors the decision to ‘sit on the fence’ will prove costly.

Individual funds worth a mention

Plexus Asset Management says the best-performing unit trust funds over the last quarter were the RMB Resources Fund (+15.7%) and the Investec Commodity Fund (+15.2%). The worst-performing fund was the STANLIB Small Cap Fund (-5.8%). This unit trust is one of a number of small company funds that have suffered in recent months. Investors have spurned small companies in favour of counters with larger market capitalisations.

Over 12 months the RMB Resources (+53.6%) and PSG Alphen Growth Fund (+43.5%) were the best performing funds. Over three years the Cadiz Equity Ladder Fund (+22.2% per annum) topped the charts, while Old Mutual Mining and Resources Fund (+29.2% per annum) scooped the laurels over five years. Of course the past performance on a fund is no guarantee of future performance and investors are warned not to be dazzled by funds that shoot the lights out over a single quarter or year!

Foreign interest underpins local equities

The strong performance from local equity unit trusts is not entirely unexpected. Foreign investors poured billions of rand into the Johannesburg Stock Exchange (JSE) last year, with net inflows in 11 of 12 months. In the 12 months to 31 December 2009 international investors gave corporate South Africa the nod to the tune of R75.86bn. StanLib economist Kevin Lings observes: “since 2002 foreigners have bought R236bn (net) of SA equities.” These investors own around 25% of the JSE! The only monthly outflow for 2009 was recorded in January 2009, when foreigners were net sellers of R0.67bn of SA equities. This negative sentiment was in line with the downbeat economic outlook in Q1.

We will probably remember 2009 as the year of the emerging market. Lings says inflows of capital to South Africa were “part of a pronounced global trend by investors to accumulate assets in emerging markets.” Investors were less risk averse as credit crisis fears dissipated. The MSCI Emerging Markets index returned 73% in US dollar terms for the year. Awash with foreign money the local bourse performed similarly. “The SA equity market (as measured by the JSE All Share Index) provided an index return of 28.6% in 2009 and a total return of 32.1%, while the rand strengthened by 27.7%,” says Lings. The local index climbed 61% in US dollar terms.

Editor’s thoughts: At year end 2009 the majority of market analysts suggested the JSE All Share Index was fairly valued. They warned that share prices would tread water until corporate earnings recovered strongly. The real test will be whether foreign investors favour emerging market risk (and dividend yields) over the rosy equity market prospects in most developed markets this year. Do you think foreign investors will be net buyers of South African equity through 2010? Add your comments below, or send them to gareth@fanews.co.za

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