All ships rise with the tide…

…ex­cept bonds, of course

Finweek English Edition - - Asset management -

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

with in­fla­tion.

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


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