Importance of equities
don’t think anyone can argue against putting listed equities at the heart of an investment strategy. Some studies show you can do even better in private equity, collectables or the right real estate deals. This may not be true, though, after the higher fees and commissions from these asset classes.
And most shares on the JSE can be sold on the same day. Most of us prefer the convenience of unit trusts as a wrapper, which give a diversified portfolio for as little as R200/month.
Perhaps the downside of a unit trust portfolio is that it is tempting to track performance over short periods.
The old Association of Collective Investments tried to ban performance reporting of less than a year. But when Morningstar came into SA it resisted this. It provides daily performance figures to its international clients. I once sat in on a Sanlam Investment Management morning meeting in which they looked at the previous day’s performance of the larger competitors.
This might seem about as useful as weighing yourself every hour. But, for example, on a day in which Naspers fell 10% it would have been fair to pick up who were the big Naspers holders.
Good financial advisers won’t need that level of detail but they should keep up on the developing performance trend of the funds in which they invest, or if their real competence is sales and service they should outsource this.
Funds will perform at different parts of the cycle. It is not easy to time moves between managers. If anything, there is much more evidence of successful switching between asset classes, or at least tweaking the equity/bond and offshore/local weightings in a portfolio.
I like to take stock of the equity funds at least once a quarter. One of the
Ilessons of the year to date is that passive funds are no safe haven. The Satrix Momentum Index sounds so clever. It has accumulated four Morningstar stars. That rating in the Michelin Guide, the French travel bible, would mean a good night’s sleep. Yet it has lost clients 10.6%. And yes, there are one-star funds, however seedy that sounds.
The Coreshares S&P Dividend Aristocrats is a great fund, focused on consistent dividend payers, yet was off 7.1%.
Past performance really has been a poor indicator recently. The RECM Equity Fund has been subjected to extensive criticism, not least from me, yet it has been a solid performer so far this year, preserving client capital.
Another good performer, in the context of a poor market, has been Counterpoint, up about 1.5%. This is due to Steve Mills and Alex Pestana, intellectuals in the rather middlebrow fund management industry.
Count your blessings
Clients should consider anything better than a loss of 1.5% to be a decent performance. The few positive performers include Clucasgray Equity under Andrew Vintcent. Truffle had a terrible December because of its high exposure to Steinhoff but it is just in the black for the year to date.
Sadly, Foord remains on the back foot, losing 4.5%. I suppose it must be reassuring that in the Old Mutual boutiques the human beings are doing better than the machines. The Managed Alpha Fund, run on a black box artificial intelligence approach, is down 9.4%, while the traditionally managed Growth and Top Companies funds contained losses to below 2%.
Not that it was a disaster for all black box funds. The Old Mutual RAFI 40 was less than 1% down. It follows the fundamental index and has a bias towards value shares on a discount to NAV.
Perhaps the downside of a unit trust portfolio is that it is tempting to track performance over short periods