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And the ‘best’ unit trusts in SA are …

What can investors learn from recognising past performance? Lessons from the Morningstar Awards.
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Giving awards to unit trusts is always contentious. This is because these accolades are, by their nature, backward-looking, given that they are based on past performance.

Investing is, after all, not about the past. It is about what is going to happen in the future. And, as every fund fact sheet makes clear, historical returns tell you little about how a fund is going to perform going forward.

The Morningstar Awards announced in Cape Town on Thursday at least recognise this contradiction. As the MD of Morningstar South Africa, Tal Nieburg, notes:

“There is no one single fund that is the best fund. These awards are done at a point in time looking back over a period in time. An award is not an endorsement that this fund is going to perform in the future.”

Read: Identifying good investment managers takes time

Yet, if these awards shouldn’t be relied upon by investors as guide to selecting funds, then what is their point?

After all, it’s no good telling investors now which funds they should have picked five years ago.

A bigger picture

Focusing only on the individual winners may, however, be misleading. Certainly what the Morningstar Awards have done over since they started 10 years ago is to highlight to investors that there is a pool of top-performing managers that is probably wider than most people realise.

Read: Morningstar awards highlight a changing industry

Consider that since the awards were launched, smaller firms have dominated the award for the best South African equity fund. The only exception was in 2010 – the first year that the award was given – when it was won by the Nedgroup Investments Value Fund, which is managed by Foord Asset Management.

Since then it has been won by Marriott, Mazi Capital, Harvard House, Aylett and Kagiso.

Recently, the award for the best aggressive allocation fund has followed a similar pattern. This year the award in this category went to the Kagiso Balanced Fund, and last year it was won by the Aylett Balanced Prescient Fund. Together, these two unit trusts hold a market share in the South African multi-asset high equity category of less than 0.4%.

Informed choice

What this shows is that there are a number of smaller managers that have delivered excellent results for their clients. What that should tell investors is that sticking only with established, big name managers has its limitations.

That doesn’t mean that certain larger firms don’t enjoy their reputations for good reason.

Allan Gray, Coronation, Investec, Prudential, Nedgroup Investments and Foord have all won multiple times at the Morningstar Awards. However, the range of other winners makes it quite apparent that they are by no means the only fund managers worth considering.

The best fund house categories this year made this particularly apparent. The award for the best fund house with a larger fund range went to Investec Asset Management, but the other two finalists were both medium-sized firms: Marriott and Sygnia.

The award for the best fund house with a smaller fund range was even more telling. For six of the last 10 years, this category has been won by either Foord or Allan Gray. In 2020, neither of them was even a finalist.

Instead, the category was won by Fairtree, with Kagiso and Platinum Portfolios as the two runners-up.

If investors consider these broader issues raised by the Morningstar Awards, rather than just focusing on the individual winners, then there is value to be found. It’s not just about picking funds. It’s about understanding the wider opportunities in the market.

The 2020 Morningstar Awards winners are:

Best Aggressive Allocation Fund

Kagiso Balanced Fund

Best Bond Fund

Allan Gray Bond Fund

Best Cautious Allocation Fund

ABSA Inflation Beater Fund

Best Flexible Allocation Fund

Select BCI Worldwide Flexible Fund (managed by Blue Alpha Investment Management)

Best Global Equity Fund

Nedgroup Investments Global Equity Fund (Managed by Veritas Asset Management)

Best Moderate Allocation Fund

Sasfin BCI Balanced Fund

Best South African Equity Fund

Kagiso Equity Alpha Fund

Best Fund House: Larger fund range

Investec Asset Management

Best Fund House: Smaller fund range

Fairtree Asset Management

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…is it my imagination, or are we having a “bloody Friday” on the (local & global) equity markets today? 🙁

Looks like we’re dealing with a “correction”…

Corona is levelling the markets properly. Great move by China…

It started Monday?

I know. And this time around, not even Gold was spared…

and the Rand….plummeting!

In one year the winners will be totally different. These funds should still be high in the rankings though.

My pension fund took a knock.

Mine down 5% since high on 20 Feb. In USD terms down 14% since high in Feb 2018. Should be typical for a reg28 investment.

USD is very expensive, seems that global investors are rushing to the US market.

Are these all managed funds? This from 10X: “When it comes to active management versus indexing, the evidence is clear, as can be seen by the latest
research by Morningstar into the performance of active and passive equity funds in South Africa. Over all
time periods, passive funds outperformed active funds, with the difference ranging between 1.4%-3.0% p.a.
This superior performance by passive funds is significant. “

Unit Trust is by definition active. There are no index funds that beat the best unit trusts on my platform.

End of comments.

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