Worst year ever for South African equity unit trusts

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According to a recent study done by Plexus Asset Management, 2008 has turned out to be the worst year ever for investors in rand-denominated domestic equity funds.

An analysis of the performance of unit trusts categorised under the various Association of Collective Investments (ACI) sectors for domestic equity funds shows that for the calendar year ended 31 December 2008, only two funds out of the 151 in existence managed to post a figure in the black. The two funds that managed to produce positive returns are both funds that make use of protection by selling equity derivatives against their equity positions.

The two funds that did not lose money are the Peregrine Protected Equity Fund and the RMB Protected Dividend Fund with returns of 7,3% and 5,0% respectively, which are still significantly below what the money market yielded for the year.

The returns achieved by domestic equity funds over the year vary considerably, ranging from +7,3% to -62,2%. Funds that lost the least over the year are funds that fall under the sector for Varied Specialist Funds with an average return of -11,3%. These tend to be funds that hedge against market downside (i.e. protected equity funds) and funds that invest mainly in high dividend-yielding shares.

The sectors to show the second and third lowest losses for the year are the sectors for Industrial Funds and Value Funds, which yielded average returns of -21,5% and -21,7% respectively. Value managers struggled up to the end of the second quarter because of their underweight resources exposure. This investment style has, however, been vindicated as many funds managed in accordance with the value style have withstood the market carnage experienced over the last few months relatively well.

Funds that bore the brunt of the bear market this year were Smaller Companies funds with an average return of -38,1%. The biggest loss-maker out of all domestic equity funds was the STANLIB Small Cap Fund which produced a dismal return of -62,2%. Resources & Basic Industries funds (with the exception of gold funds), which were the best performers during the first half of the year, ended up near the bottom of the pile with an average return of
-27,4%. The average performance for the various ACI Domestic Equity sectors during the calendar year 2008 is shown in Diagram A.

Despite a year-end rally of almost 21% in the FTSE/JSE All Share Index since its low on 20 November 2008, the fact of the matter is that 2008 has proven to be the worst ever year for domestic equity funds by a significant margin.

Diagram B shows the average annual returns achieved by domestic equity funds that invest across the entire market (i.e. General, Value and Growth funds) and the FTSE/JSE All Share Index since 1989.

The figures show that the market will have to rally by about another 30% before investors recover what they lost in 2008. With more bad news on the company earnings front on the cards, it would take a brave person to bet on this happening any time soon.

Diagram A


Data source: Profile Media

Diagram B



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