Imagine for a second that you had invested a lump sum of R100,000 in one of the largest equity funds in the country in November 2016. Perhaps your financial advisor suggested one of the better-known names (no one was fired for buying IBM) ? Or maybe you were swayed by one of those television commercials that pulls on the heartstrings?
How much would that 100,000 rand be worth today?
Join heated discussions with the Moneyweb community and get full access to our market indicators and data tools while supporting quality journalism.
R63/month or R630/year
You can cancel anytime.
In this exercise, Moneyweb compared only equity trusts with R10 billion or more in assets under management based on data from the South African Savings and Investment Association (Asisa) at the end of June 2021. Importantly, this included balanced funds, as these are realistically the only option for savers for retirement under the limitations imposed by Regulation 28 – as well as so-called ‘low-capital’ funds, as defined by Asisa.
It can be argued that funds with assets of between 1,000 and 10,000 million rand, due to their size, would find it easier to outperform larger funds. This is not false, but the performance is obviously not uniform across the board.
Unsurprisingly, the three funds in this comparison that track global indices have far outperformed the rest. R100,000 invested in CoreShares S&P 500, which is a unit trust container that tracks the exchange-traded fund (ETF), would be worth more than R236,000 today.
That’s a 137% return.
It can be argued that this performance was due to the weak rand, but the currency has only depreciated 12% against the dollar since November 2016 (R14.08: $ 1). Even the 50-unit Satrix Itrix Eurostoxx trust, which tracks an index that has performed moderately in local currency terms (42% in five years), is up 87%, worth almost R190,000 today.
Locally, the Fairtree Equity Prescient Fund has far outperformed all others in this comparison, with a return of 84%. Keeping the R100,000 on the market and simply tracking the top 40 (using the Satrix 40 portfolio) would give you R167 790 today, a 68% return.
This is the value of R100 0000 today if it was invested five years ago in the five largest funds in the country (excluding money market and non-rand offshore funds):
It is amazing that the Allan Gray Balanced Fund barely outperformed its Money Market Fund (included in this comparison for reference as it is the largest after the closure of its fund by Absa). This performance is practically indicative of some Money market fund.
Perhaps most alarming, the Allan Gray Equity Fund has underperformed both its Balanced Fund and its Money Market Fund.
Several of the so-called conservation-type funds have also underperformed significantly money market funds.
* Class A funds used when there is more than one class
* FundsData data as of November 22, 2021
Old Mutual’s investor table fund (with R13 billion under management at the end of June) has not outpaced inflation in the last five years. R100,000 invested in this flagship fund in November 2016 would not be worth even R120,000 today. The fund’s fact sheet confirms that it has delivered less than half the performance of the benchmark (3.3% per annum for Class A vs. 6.7%) over the past five years.
Stats SA reports a consumer price inflation of 22.7% in the last five years (since December 2016).
For retirees, this number is ostensibly 22.9%. For those who are better off, inflation over the period has almost certainly been about 10 percentage points higher, in other words 33%.
Importantly, this comparison does not necessarily include all fees. It simply measures the index of total return over five years (which includes any dividend or interest payments). When factoring in the impact of fees (a far from straightforward task), the performance of lower cost index tracking funds will likely be boosted compared to more expensive actively managed funds. Over a period of time longer than just five years, the difference will be material.
What this exercise does show is how destructive the limitations due to Regulation 28 can be when it comes to performance (with Regulation 28, exposure to equities is limited to 75%, exposure to foreign investment is limited 30%). Being forced into a balanced fund that complies with Reg 28 in a pension or retirement annuity investment has a significant impact on returns that is not fully offset by the tax advantage.
Read: Treasury listens to industry on Regulation 28
However, this comparison is not about betting on investing abroad at the expense of everything else. But with a stagnant economy and a weakening currency over time, investors should carefully consider their options.
R100,000 may not be a lot for many people. But what if you invested a lump sum of 1 million rand five years ago? Placing it in a flagship balanced fund, or worse still, an underperforming equity fund, could end up costing you more than R1 million.
- CoreShares S&P 500 – R2.4 million
- Sygnia Itrix MSCI World – R2.2 million
- Satrix 40 Portfolio – R1.7 million
- Discovery Balanced Fund: 1.5 million rand
- Coronation Balanced Defensive Fund – R1.4 million
- Allan Gray Balanced Fund: R1.4 million
- (Any) Money Market Fund – R1.4 million
- Allan Gray Equity Fund – R1.36 million
- Former Mutual Investors Fund – R1.2 million
With a lump sum of 10 million rand, the numbers turn dismal.
It certainly makes you think.