South African unit trusts: Comments on results for the quarter ended 31 December 2008

By Prieur du Plessis, on January 19th, 2009 posted in: South Africa

The carnage on global equity markets continued in the December quarter as investors steered clear of growth assets in search of liquidity and safe havens such as bonds and gold. Global equity markets in US dollar terms as measured by the Morgan Stanley World Index ended the quarter 22,18% down after its low of 34,75% in November.

Although the FTSE/JSE All Share Index was seemingly spared most of the carnage by ending only 9,17% down on a total return basis, the rand absorbed most of the shock by depreciating by 13,49% and 11,25% against the US dollar and euro respectively. In US dollar terms the FTSE/JSE All Share Index was down in line with the global index by 21,42%. The swings in equity prices were massive – at its low in November the JSE was down by 25,44%, but subsequently recovered by 19,27% to the end of the quarter.

The FTSE/JSE Gold Index produced a sparkling performance by returning 21,96% for the quarter on a total return basis on the back of a steady gold price in US dollar terms and a significant fall in the external value of the rand. However, investors in the two gold- and precious metal-related funds, the Old Mutual Gold Fund and STANLIB’s Gold and Precious Metals funds, hardly benefited as they achieved an average return of only 2,97% for the quarter. Domestic equity resources and basic industries (excluding gold and precious metal funds) were again slaughtered and ended the quarter 20,18% down as the US dollar prices of base metals nearly halved while the Brent oil price fell by a massive 62% or $60 per barrel.

In the local market, the sell-off was not limited to resources, though, as 4,06% and 11,43% were wiped off the FTSE/JSE Industrial and FTSE/JSE Financial indices respectively.

The carnage resulted in the FTSE/JSE All Share Index ending the year down 23,24%, with the major FTSE/JSE indices as follows:

• Small Cap: -31,20%
• Resources: -28,31%
• Industrial: -16,08%
• Financials: -26,17%
• Real Estate: -22,31%
• Mid Cap: -18,70%

The significant sell-offs over the past two quarters resulted in the FTSE/JSE All Share Index giving back all the profits since September 2006, thereby putting investors two years back.

The foreign fixed interest bond was the best performing subcategory with an average return of 12,02% for the quarter as global bond yields dropped significantly. The foreign fixed interest bond subcategory also topped the charts on a one- and three-year basis with returns of 32,98% and 17,64% per year respectively. The domestic fixed interest bond subcategory was the second best performing subcategory with an average return of 10,23% for the quarter as the South African bond market continued to perform exceptionally well on the back of the yield on the All Bond Index falling from 10,03% to 8,97%.

The top three best performing funds over the past quarter were all in the foreign fixed interest subcategory. Coris Capital International Bond Fund A achieved a total return of 20,03%, closely followed by RMB International Bond Fund A and Absa Global Bond Fund A with 18,82% and 18,38% respectively.

Coris Capital International Bond Fund A was also the best performing fund on one- and three-year terms with total returns of 61,01% and 25,25% per year respectively.

Investors are reminded that future investment decisions should not be based on short-term performance figures. Despite the sharp drop in equity prices over the past six months, equity funds are still providing the best returns over the five-year period. Although value has emerged in equity markets, the financial crisis is not over yet and big surprises may still lie ahead. Tread with caution.

Best and worst performing sectors over various periods ended 31 December 2008