The past decade has not been the easiest for local investors, mostly due to the weaker than normal performance from JSE-listed stocks. From the start of 2010 to the end of 2019 the FTSE/JSE All Share Index delivered an annualised return of 10.8%. This is meaningfully lower than its long-term average of 13.7% per year.
It is worth taking into consideration that inflation in South Africa has also been below its historical average over this period. It came in at around 5.1% per year, as opposed to 6.4% over the long term.
Even adjusting for this lower inflation, however, the JSE’s returns have been below average. Instead of real returns of more than 7% from local stocks, investors have only enjoyed real returns of less than 6% per year.
This has understandably had an impact on the performance of South African balanced funds. Looking at their returns since inception, the best performing multi-asset high equity fund over the long term – the Allan Gray Balanced Fund – has given investors 15.9% per year. The best performer over the last 10 years, the Rezco Value Trend Fund, has managed only 11.9%.
This is not just the case at a general level, however. Looking at the more recent performance of individual funds and comparing them to their own long-term averages is revealing.
The table below lists the 10 best performing South African multi-asset high equity funds based on their returns since they were launched. These ‘since inception’ returns are not directly comparable to each other since the funds were all started at different times. They are only used to determine which funds have the best long-term track records.
For investors, what is interesting is to compare these long-term performance records against what each individual fund has been able to achieve over the last five and 10 years.
|South African multi-asset high equity fund performance|
|Fund||Since inception annualised||10-year annualised||5-year annualised|
|Allan Gray Balanced Fund A||15.90%||10.21%||7.34%|
|Rezco Value Trend Fund A||15.24%||11.91%||6.55%|
|Coronation Balanced Plus Fund A||14.15%||10.53%||6.09%|
|Investec Opportunity Fund A||13.91%||9.61%||7.42%|
|Foord Balanced Fund A||13.45%||9.96%||5.09%|
|Nedgroup Investments Private Wealth Diversified Growth Fund A||13.31%||9.85%||4.94%|
|Melville Douglas Stanlib Balanced Fund A||13.13%||10.55%||6.04%|
|Prudential Balanced Fund A||13.13%||10.59%||6.58%|
|Investec Managed Fund A||13.02%||10.81%||9.00%|
|PSG Balanced Fund A||12.68%||9.46%||5.03%|
Source: Morningstar (to 17 January 2020)
Without exception, these funds have been unable to match their historical returns over the past decade. Equally, their five-year returns are even lower again.
That is not surprising. The environment since 2010 has not been conducive to repeating the high returns enjoyed during other periods. The past five years on the JSE have been particularly unsupportive.
The first thing worth noting, therefore, is which funds have managed to deliver the highest level of consistency despite these circumstances. The Investec Managed Fund clearly stands out on this measure, given that its five- and 10-year returns are both within 30.8% of its long-term average.
No other fund shows a deviation of less than 46.7%.
The Investec Opportunity Fund and Prudential Balanced Fund are next best in this regard.
Conversely, three funds show five-year annualised returns that are more than 60% below their long-term averages – the Foord Balanced, Nedgroup Investments Private Wealth Diversified Growth, and PSG Balanced funds. For all three, their five-year performance is also lower than the category average.
By both measures, these funds have done poorly over this period. The question is how disappointed investors should be about this.
Bear in mind that all three have significantly outperformed their peers over 10 years. Based on their returns since being launched, they are also three of the top-performing funds in this category over the long term.
Consider also that the PSG Balanced Fund actually outperformed for most of this recent period. As the graph below shows, it had an excellent shorter term record until August 2018. It however suffered a year of significant underperformance until the last quarter of last year.
The fund’s weak five-year numbers are therefore really the result of a bad 13 months. That is not particularly significant in the context of its longer-term record.
The need for patience
It is important for investors to appreciate that periods of underperformance are inevitable. No fund can be at the top of the pile every year.
It is therefore necessary to see any underperformance in context. Despite its weaker performance over the past five years, for instance, the Foord Balanced Fund has still given investors a return of almost inflation + 5% over 10 years. That is real wealth creation.
Particularly over a period in which no fund manager has really looked all that clever, investors shouldn’t be too eager to ditch funds with proven track records. In the short term, even the best funds can look pretty mediocre. But it’s what happens over decades that really counts.