Investors win with iron stocks

• Rand rebound and Brexit undermine 2016 gains

While the price of iron ore rebounded 28% over 2016, the share prices of the JSE’s iron ore miners rocketed far more dramatically. The share prices of both Kumba Iron Ore and Assore nearly quadrupled, making them the best stocks to have bought at the end of 2015 and held in 2016.

The old Wall Street adage “as goes January, so goes the year” was apt for the JSE in 2016.

The JSE’s top 40 index began the first trading day of last year with a 2.9% drop and ended the first month of last year down 3.8%. Over the course of 2016, the top 40 index lost 4.14%.

Investors in the JSE’s benchmark exchange-traded fund, Satrix Top 40, which tracks the blue chip index, ended last year 4.62% poorer. But investors in local equities can take some consolation in that they still beat those who bet on foreign stocks. All five of the developed market index-tracking exchange-traded funds offered to JSE investors by Deutsche Bank suffered worse losses than Satrix Top 40 over the course of last year.

Although the UK, eurozone, Japanese and US markets did appreciate in local currencies, the rand’s rebound from December 2015’s Nenegate caused them to be bad investments for South Africans.

The pound’s slump following the UK’s vote to leave the EU on June 23 made Deutsche Bank’s FTSE 100 tracker the JSE’s worst performing exchangetraded fund over 2016, with a 17.65% loss for investors.

Exchange-traded notes have been left out of the comparison because the JSE’s data feed fills in garbage values for days they do not trade — which are fairly often over the festive season. If exchange-traded notes had been included, last year’s worst performer would have been BNP Paribas’s Eurozone portfolio which, ironically, was 2015’s best performing exchangetraded product on the JSE.

The post-Brexit pound crash saw local investors who held their savings in UK money market accounts via Absa’s NewWave GBP exchangetraded note lose 27% of their investment over last year.

Its sister euro market money account fund lost 15%, and the dollar product 12%.

The list of the JSE’s top 10performing exchange-traded funds shows that local investors should have kept their money in resources stocks and safe havens such as bonds and preference shares.

The South African government bonds Absa offers as an exchange-traded note appreciated 14.46% and the portfolio of preference shares offered by CoreShares gained 8.83%.

The top 10 list provides some interesting fuel for the active versus passive portfolio debate.

While S&P’s Global Intrinsic Value Index (Givi) indexing methodology licensed by Absa, Research Affiliates Fundamental Index licensed by Satrix along with the two dividend-based portfolios in the top 10 are not strictly active portfolios, their 2016 success provides marketing ammunition against passive — as in market capitalisation-weighted — index trackers.

The 15 resources shares selected by their book value, return on earnings and other parameters used by S&P’s Givi formula returned 38.46%, beating the 28.08% return of the traditional market cap-weighted portfolio offered by Satrix Resi.

Note, however, that the Givi formula did not repeat this success in other sectors. The financial portfolio selected using the Givi methodology lost 17.24% while Satrix Fini investors nearly broke even with a 0.13% loss over last year.

Givi also did worse than the FTSE/JSE market cap-weighted trackers in the industrial sector, with the 50 shares it selected doing worse than the traditional top 40.

Regarding commodity trackers, it is interesting to note that palladium holding exchangetraded funds made the 10 best list, while sister metal platinum made the 10 worst list.

Both Absa’s and Standard Bank’s gold holding exchangetraded funds lost about 4.3% over 2016. Last year was nearly the reverse of 2015 when foreign blue chip trackers were the best performers and resources were the worst.

Deutsche Bank’s MSCI US index tracker lost 4.81% over 2016, stumbling after a five-year success run which saw it return 64% in 2013, 24% in 2014 and 33% in 2015.

That blue chip US stocks lost South African investors money last year is somewhat surprising considering that measured in dollars, Wall Street ended 2016 near record highs.

For local investors, a 9.5% rise in the S&P 500 index was wiped out by the rand strengthening 11% against the dollar.

ALL FIVE OF THE DEVELOPED MARKET ... EXCHANGE-TRADED FUNDS OFFERED ... BY DEUTSCHE BANK SUFFERED WORSE LOSSES THAN SATRIX TOP 40