All ships rise with the tide…
…except bonds, of course
THREE DISTINCT THEMES emerge from the accompanying fund performance tables for the year to February: resources funds account for half the top 10 performers; two of the top three funds are invested in global listed property funds; and emerging companies crowd the upper rungs of the performance tables over one, three and five years.
A substantially weaker rand assisted the resources and international property funds. All the top 25 funds returned more than 40% over one and three years and you have to look hard to find a loser (there were two losing funds over the year to February and none over three years).
The top performer – Coronation Resources – came in with a 58% return over one year, helped by some extraordinary growth from platinum stocks, particularly Aquarius and Eland. Its biggest bet is on Sasol, followed by BHP Billiton, Implats, Mittal, Aquarius Platinum, Anglo American plc, Mvelaphanda, AngloGold Ashanti and Eland Platinum. The fund’s decision to stay underweight in gold and overweight in platinum worked beautifully.
Coronation chief investment officer Louis Stassen says the group remains fully invested in equities. “The easy money was made three years ago, but equities still offer the best opportunities for growth relative to other asset classes.”
Stassen says the valuation gap between domestic and international equities has narrowed to the point where international stocks, on the whole, offer better value. “We’re cautious with domestic equities but still believe there’s upside potential and for that reason have started taking out protection against any possible correction.”
Investec Commodity Fund, which delivered a fourth place return of 52,3% for the year to February, also took heavy bets on Sasol, BHP Billiton, Anglo and Mittal but stayed relatively shy of platinum stocks, other than a small weighting in Anglo Platinum.
Stanlib Commodity Fund took a massive bet on Anglo American, which grew nearly 80% over the past year, lifting the fund’s ranking to fifth over one year. It also did well on Aveng, BHP Billiton and Anglo.
Old Mutual Mining & Resources’ portfolio line-up looks similar to that of Investec Commodity Fund, only the weightings are more generous to Sasol and BHP Billiton.
The performance tables supplied by Profile Media show that many bond funds struggled to keep pace with inflation. Bonds outperformed equities for much
of the past decade but the reversal in the interest rate cycle in 2006 brought that run to an end.
Two of the most surprising appearances on the performance table are Stanlib International Property Fund at second place (with a return of 55,9% over one year) followed by Marriott Global Real Estate Fund (a one-year return of 52,7%). Paul Hansen, director of retail investment at Stanlib, says the weaker rand played a relatively minor role in the performance of the fund, which is up roughly 40% in US dollar terms over the past year.
Many bond funds struggled to keep pace
Stanlib International Property Fund’s biggest country holdings as of December 2006 were in the US (39%), Britain (15%), Japan (11%) and Australia (10%), with the balance spread in Hong Kong (6%), continental Europe (9%), Singapore (2%) and other smaller markets.
“Our fund (managed by Fidelity) is overweight in Germany because Europe has been slow in developing its listed property market, so we think it has still a way to go,” says Hansen. Property as an asset class has proven more defensive than both equities and bonds over the recent past. Global growth remains robust – a positive for property – but unanticipated interest rate hikes could dampen prospects looking forward.
Property in Japan offers yields of between 3% and 5%, well above the 10-year bond rate of 1,6%. Hansen says the US property market has been driven by listed residential and office stocks, which comfortably beat retail and industrial. Vacancies are low and landlords are achieving higher rentals, while the overbuilding of prior years has largely been worked into the system.
There’s a generous smattering of small cap and emerging company funds among the top performers. Stanlib Small Cap Fund returned 44% over the year to February, helped by some outstanding selections, such as Dawn, up eightfold since 2004, and Group 5, up nearly sixfold over the same period. Wilson Bayly Homes – Ovcon gained 84%, Hudaco nearly 50% and Scharrig Mining more than doubled over the past year.
Metropolitan Industrial Fund – which returned 43% to investors over the past year – took worthwhile bets on MTN, Barloworld and AltX companies Esor and WG Wearne.
Making money in that market took no effort at all. An investment in Satrix 40, which tracks the Alsi 40 index, earned about 40% in each of the past two years. The doomsayers having been urging caution since 2005 and those who heeded their advice to tread lightly around the exchange would have lost handsomely.
Jeremy Gardiner, director at Investec Asset Management, says that caution is a product of the boom-bust cycles of the past, when investors learned to distrust extended bull markets. Memories of the crashes of 1969, 1987 and 2002 are still fresh in many investors’ minds, though flows into unit trusts picked up sharply over the past year, suggesting a more adventurous approach to investment is taking root.
The valuation gap between domestic and international equities has narrowed. Louis Stassen