Unit trust returns: picking the winners
Last year was a divisive one for unit trust returns: good for those that piled into precious metals, bad for those that didn’t
There was an unusually wide range of returns from general equity funds last year, with top performer Investec Value gaining 32.1% and bottom performer PSG Equity losing 6.8%.
In previous years these positions were reversed: in 2016 and 2017 PSG flourished while Investec Value battled.
But this past year, performance was driven by a few resources shares, particularly Impala Platinum (Implats), up almost 300%, as well as gold shares Gold Fields and Harmony, which doubled.
At one point, Implats and Sibanye accounted for 40% of the Investec Value Fund, but this has been reduced to just under 6%.
Investec Value portfolio manager John Biccard now has 25% of the fund in three shares he believes to be severely undervalued — Sappi, Exxaro and Massmart — and he has doggedly held onto his big losers last year — Christo Wiese’s Brait and UK shopping centre group Intu Properties.
The second-best performer, Methodical Quantitative Equity, is a relative newcomer, having started in June 2016. Run by Edo Brasecke and Charl Keet, it adopts a momentum style — buying shares it expects to get more expensive.
The pair hit the jackpot several times — the fund’s largest seven shares were all in the resource sector and included Gold Fields, Sibanye and Implats.
Truffle General Equity, another top 10 performer, began accumulating platinum shares in 2018. And portfolio manager Iain Power says while the platinum story still might have longer to play out, an important theme of the next two years will be the unbundling of holding companies. "With RMB Holdings on the way out, can a restructuring of Rand Merchant Investments (RMI) be far away? And there is the opportunity to unlock the value of the Pension Corp from Reinet, as well as for Ethos to salvage some value from Brait."
It wasn’t such a good year for some proprietary index funds — like the Satrix Dividend Plus Index Fund, which returned -0.3%, while the Satrix Quality SA Index gained 1.1%.
On the other hand, the original Satrix Alsi Index Fund, tracking the big multinational shares that dominate the JSE’s top 40 index, gave clients 12.9%.
Satrix chief investment officer Kingsley Williams says a high dividend strategy should pay off over five years but in 2019 there was very little exposure in that index to the outperformers — gold and platinum companies — and big holdings in poor performers such as Old Mutual and Vodacom.
It is no surprise that the Quality Index Fund does not have a big exposure to resources as it focuses on companies with high returns on equity, strong brands and low gearing. It includes usually reliable counters such as Clicks and Mr Price.
Anglo American Platinum (Amplats) did join the index in December 2019 and at the next review more gold and platinum shares will be included, though it’s fair to assume the easy money in these stocks has already been made.
Of the large established shops, Sanlam Investment Management (SIM) and Coronation had particularly strong years.
Coronation chief investment officer Karl Leinberger says the Equity Fund took pain in 2017 and 2018 as it built up large holdings in platinum shares, then at multiyear lows.
It has since taken profits, selling out of Amplats, disposing of two-thirds of its Northam Platinum holding (though it is still 4% of the fund), redeploying into cheaper shares such as the banks, and taking advantage of mispricing between Prosus and its pyramid Naspers.
SIM Top Choice takes large positions in a few shares. It holds 20% between Naspers and Prosus and close to 10% in Implats.
A 5% holding in Sibanye also helped as some of the portfolio was in pedestrian performers such as Old Mutual, Absa and Standard Bank.
This past year, performance was driven by a few resources shares, particularly Impala Platinum, as well as gold shares
SIM General Equity includes a 10% exposure to the Sanlam Global High Quality Fund, which it can increase, and fund manager Charl de Villiers says he also invests in "self-help" shares, where management can improve the business, such as Woolworths.
It was a poor year for small-cap funds, with the small-cap index down 4%.
General equity funds with a small-cap bias also battled. Cannon Equity owned some respectable performers such as BHP, Anglo American and Glencore, but also owned hefty positions in disappointing shares such as Old Mutual, Master Drilling and Pan African Resources.
Neil Brown, manager of the Nedgroup Investments Growth Fund, had a grim year after being in the top quartile for the previous three years.
But, says Brown, clients need to reconcile the fact that funds such as his are SA-only, whereas other general equity funds can invest up to 30% offshore.
For example, the Allan Gray SA (only) Equity Fund gave a 5.1% return in 2019, well below the 7.8% from the Allan Gray Equity Fund, which includes offshore assets.
Stanlib had an even more significant gap, with just 2.4% from its SA Equity Fund and 12.1% from its Equity Fund.
Brown believes that the Growth Fund has 50% upside, compared with about 17% for the market as a whole. "There are lots of businesses in the portfolio, such as City Lodge, Tsogo Sun, Sasol, AECI and Grindrod, trading well below fair value," he says.