One of my clients presented me with an advert for “South Africa’s Randiest Hedge”, which was carried in the Sunday Times on 13 March this year. It is an advert for gold coins and goes on to proclaim the virtues of investing in gold, especially if one is “feeling switched off by current financial offerings”. The basis of the advert is the fantastic return of 1550% over the past 20 years (1992 to 2012). Who would not be interested in something like that?
1550% over 20 years sounds incredible, until you do t h e mat h s . It equates to a compound annua l ret urn of 13.8%. However, for the first 10 years at least, the return was close to 0% per annum. It is only in the past 10 years that the “Randiest hedge” has really performed and during this period, the return has been around 25% per annum. Not bad indeed (so long as you did not bail during the first 10 years and miss the past 10).
What about the claim about being South Africa’s Randiest Hedge, is there anything else that has done as well over the period? A quick look at the Alsi shows that it returned 17.02% per annum over the same 20-year period. If you had invested in the Alsi, then your final value would have been 2937% higher. There are few equity unit trusts that have been around that long, but the best fund over that period is the Investec Equity Fund, which delivered 18.48% per annum. If you had invested in that fund over the 20-year period, then the f inal value would have been 3917% ‒ much more than double that of the “Randiest hedge”. In fact, 11 of the 12 equity unit trusts that have been around that long would have delivered better returns t han t he gold coin investment over the 20-year period. For the record, the estimated CPI over the s a me t i me was around 6.4% ‒ so they have all comfortably outperformed this figure.