Some hope after month of drama on JSE
Positive outlook for investors and savers
The last month of the year began with the dramatic fall in the price of one of the largest shares on the JSE, and potentially more volatility with the ANC's national conference. But barring market-wide shocks, the year is likely to end on a positive note for many investors and retirement savers.
In the second week of the month Steinhoff International shares plummeted 80%, with estimates that the company's actions resulted in losses of more than R200-billion for investors on the JSE and more than R10-billion for retirement funds.
Most unit trust investors and retirement savers had relatively low exposures to the share, which regained some ground this week, leaving most investors set to end the year better off than they began it.
Despite these losses, Morningstar reported that South African general equity funds had an average year-to-date return of 8.53%, according to data to December 13, while the multi-asset, high-equity funds - where the bulk of local retail retirement fund money is invested - had an average return of 9.17%. The only sector showing a year-to-date loss was small-cap funds, with an average return of minus 7.58%, Morningstar reported.
The top average returns were from funds in the global general equity and global flexible multi-asset sectors - 18.89% and 14.0% respectively.
Losses relatively low
Responding to Finance Minister Malusi Gigaba's call to report on the extent of retirement funds' losses, Dube Tshidi, the registrar of pension funds at the Financial Services Board, reported that among 793 funds that had exposure to Steinhoff and its subsidiaries, the decline in value over the week to December 8 was R10.6-billion.
Despite this being "significant", Tshidi said the exposure of the funds to Steinhoff in these retirement funds was a "relatively" low 1.65% and their decline in value over the week was 1.16%.
The registrar's data extends to 955 retirement funds holding some R911.5-billion out of 1655 active funds. Tshidi also pointed out that the losses would only be realised if asset managers sold their Steinhoff securities.
The Government Employees Pension Fund said its exposure to Steinhoff was only 1% and that the share-price fall was "manageable". The fund is said to have had a R28-billion exposure to Steinhoff.
The GEPF is a defined benefit fund, which means members retire with a guaranteed pension based on formulas that take into account their final salary and years of service. If the fund's investments are not sufficient to fund these pensions, the government is obliged to make good the fund's shortfalls.
Kedibone Dikokwe, head of the collective investment schemes department at the FSB, said the board's statistics from the quarter that ended on September 30 showed that South African unit trust funds had only a 0.9% exposure to Steinhoff securities - an investment amounting to R21-billion out of the R2.1-trillion invested in unit trust funds.
Dikokwe said the FSB was not considering allowing unit trust funds to move Steinhoff bonds into retention or side-pocket funds, as with African Bank debt. In 2014 investors scrambled to withdraw from money market accounts and funds because the funds held African Bank debt and there was no clarity on how it would be treated.
In terms of regulation 28 of the Pension Funds Act, retirement funds can invest only 75% of the fund in equities and only up to 10% in a single share. They can also invest only 5% in the bonds of a single issuer. Funds typically do not have such high exposures to a single share or bond.
The country's largest unit trust fund, Allan Gray's R143-billion regulation 28-compliant Balanced Fund, had an exposure of just 0.26% to Steinhoff before the share price plummeted. The fund's net asset value was down 0.59% on December 5, but its year-to-date return on December 13 was 10.15%.
The R88-billion Coronation Balanced Plus had a 2.1% exposure to Steinhoff on December 5 but showed a 12.29% return for the year to date on December 13.
• 80% is the percentage by which Steinhoff shares plummeted in the second week of the month
• R214 billion is the estimated loss that the company's actions created for investors on the JSE
The R37-billion Prudential Inflation Plus Fund had a 0.23% exposure to Steinhoff and a return to December 13 of 8.65%
Peter Brooke, head of MacroSolutions at Old Mutual Investment Group, said less than 1% of the Old Mutual Balanced Fund was exposed to Steinhoff. The fund was up 11.44% for the year to date on December 13.
Steinhoff was "the biggest corporate scandal" in his 23-year career, Brooke said, but the power of diversification meant it was not a train smash for most investors.
Steven Nathan, CEO of index-tracking investment company 10X Investments, agreed that Steinhoff highlighted the benefits of diversification. The 10X Prime High Equity Fund, with a 1.2% exposure to Steinhoff, was up 10.75% for the year to December 13.
Lost the most
Morningstar data showed that the highest holdings - above 10% - in Steinhoff International at the end of last quarter were in two index funds. Specialist industrial funds, as well as some equity, sharia and value funds, had exposures of between 5% and 10%.
Investors in these funds were likely to have suffered the worst losses unless the managers had sold down their holdings before the Steinhoff saga broke.
Losses on the large-cap unit trust funds, which invest in the Top 40 or Top 20 shares on the JSE, for the week to Tuesday this week were between 5.5% and 2%. Among the leading indices, the JSE Swix 40 had the highest exposure to Steinhoff at 2.85%, the Top 40 had 2.28%, the JSE Swix had 2.3% and the JSE All Share index had 1.91% at the end of November.
The Industrial index had a 3.44% weighting to Steinhoff and losses on these funds over the week to Tuesday were between 6.02% and 3.05% but, over the year to date on Thursday this week, these funds were showing positive returns of between 7% and 15.5%, according to Morningstar.