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SA’s top-performing equity funds

The struggle to find outperformance.

It has not been easy to find growth in the local stock market over the last few years. Investors are very aware of how poorly the JSE has performed since the middle of 2014.

Usually one would expect equity funds to target performance of CPI + 7%, but as the table below shows, very few have achieved this in the last five years. South Africa’s inflation has averaged around 5.5% over this period, meaning that an annualised number of 12.5% would be in line with expectations. 

Returns are shown here along with total investment charges (TIC).

SA general equity fund performance to August 31, 2018
Fund Five-year annualised return TIC
Anchor BCI Equity Fund A 13.06% 1.94%
Fairtree Equity Prescient Fund A1 12.90% 1.73%
Investec Equity Fund R 11.95% 1.76%
PSG Equity Fund A 11.33% 2.08%
Allan Gray Equity Fund A 11.07% 2.36%
Aylett Equity Prescient Fund A1 11.04% 1.31%
36ONE BCI Equity Fund A 10.65% 2.58%
ALUWANI Top 25 Fund A 10.57% 1.68%
Prime General Equity Fund B 10.55% 2.31%
Bridge Equity Income Growth Fund A 10.26% 1.53%
FTSE/JSE All Share Index 9.99%  
FTSE/JSE All Share SWIX Index 10.25%  
FTSE/JSE Capped All Share SWIX Index 9.48%  
Category average 7.81% 1.76%

Source: Morningstar

There are only two funds that meet the CPI + 7% standard. The average return from equity funds has been extremely disappointing at a little over CPI + 2%.

What further illustrates how difficult it has been for equity fund managers is that consistency has been elusive. As the table below shows, the top five funds on the above list have each delivered pockets of strong performance mixed with less successful periods.

SA general equity fund annual performance to August 31, 2018
Fund 2014 2015 2016 2017 2018
Anchor BCI Equity Fund A 24.7% 28.0% -9.5% 8.6% 2.0%
Fairtree Equity Prescient Fund A1 18.2% 6.6% 7.9% 19.7% 0.6%
Investec Equity Fund R 16.5% 14.3% 1.2% 12.0% 4.7%
PSG Equity Fund A 14.3% -6.4% 25.1% 11.2% 0.9%
Allan Gray Equity Fund A 13.6% 6.3% 8.8% 14.0% 3.4%

Source: Morningstar

The pattern of returns also differs markedly. In the case of the Anchor Equity Fund, 2014 and 2015 were boom years, but since then it has stagnated. Its annualised return over the last three years is under 2.5%.

The PSG Equity Fund has an entirely different return profile, having shown a negative performance in 2015, followed by substantial outperformance in 2016.

This also illustrates how longer-term performance numbers can hide a lot. Over five years the performance of these two funds is quite similar, but they achieved that return in very different ways.

It is also interesting to compare fund performance against the different benchmarks. Only 11 equity funds in a universe of 97 outperformed the shareholders weighted index (SWIX) over this period. Just 12 delivered a return higher than the All Share Index (Alsi). A total of 23 outperformed the Capped SWIX.

Put differently, only 24% of local equity funds beat the lowest of these benchmark hurdles. And one of those that did was an Alsi tracker fund.

The divergence of returns is also noteworthy. The weakest performer over these five years was the Cannon Equity H4 Fund, which delivered an annualised -0.27%. The difference between the highest return and the lowest return was therefore 13.32%.

In nominal terms, this means that an investment in the top fund would be worth almost double the same investment in the bottom fund at the end of this period.

Looking at the longer term, the table below shows the top performing equity funds over the last 10 years.

SA general equity fund performance to August 31, 2018
Fund 10-year annualised return TIC
Marriott Dividend Growth Fund R 13.89% 1.39%
Aylett Equity Prescient Fund A1 13.85% 1.31%
PSG Equity Fund A 12.87% 2.08%
Momentum Real Growth Equity Fund A 12.79% 2.04%
SIM Top Choice Equity Fund A1 12.53% 1.53%
Prudential Equity Fund A 12.53% 2.21%
Prudential Dividend Maximiser Fund A 12.49% 2.25%
Coronation Top 20 Fund A 12.48% 1.17%
Imara BCI Equity Fund A 12.31% 1.81%
Coronation Equity Fund A 12.20% 1.29%
FTSE/JSE All Share Index 10.99%  
FTSE/JSE All Share SWIX Index 11.76%  
Category average 9.52% 1.76%

Source: Morningstar

Over this period, 12 out of 60 funds outperformed the SWIX and 18 beat the Alsi. That is 20% and 30% respectively.

These numbers are slightly better than over the last five years, but are still generally disappointing. The average category return of 9.5% is also just 3.5% above inflation.

The Aylett and PSG funds are the only two to appear in both the five-year and 10-year tables. The Coronation Top 20 Fund, which ranks eighth over 10 years, is only 58th on the five-year list. Again, this suggests how difficult it has been to deliver consistency in the last decade.

It is notable that the Marriott Dividend Growth Fund is the top long-term performer, as this fund’s primary aim is not target capital growth. Its objective is to produce an attractive and sustainable dividend yield.

Over the last 10 years, the market has gone through two periods when investing for dividends was a highly successful strategy.

The first was the bull market that followed the global financial crisis of 2008: the demand for quality companies pushed up the prices of businesses that showed the ability to produce consistent earnings and cash flows, and, as a consequence, dividend payments.

The second has been the last few years in which market growth has been muted. Dividends have made up the majority of market returns over much of this time. A portfolio of good dividend payers has therefore produced competitive returns.

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COMMENTS   9

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Another note about the Marriott Dividend Growth Fund R:

It can hold (and does) up to 25% international equity, so it’s not a pure SA equity fund (since 2016 if I recall correctly). Which might help in explaining their 10 year topping performance.

Now let’s see how that compares with the top-performing US fund Vanguard Opportunities Fund:
(These are the latest figures and differs from Patrick’s, which is to end August).

1 yr 3 yrs 5 yrs

Vanguard 50% 26% p.a. 26% p.a.
Anchor -0,7% 1,91% 11,5% p.a.

Hmm…where would you have rather been with your money?

Virgin:

For completeness, maybe you should also highlight the difference in TIC…

Even at a TIC of 10% pa would I have been happy with my money in the Vanguard funds.
Or maybe you should check your eyes….Vanguard 50% up in a year and Anchor down 1,7% for the year and you want to compare TIC’s? Oi vey….

Exactly . This story is all about geography. It is impossible for many to outperform the index and the index in SA didn’t do well. You can’t manufacture good returns if there aren’t any available.

Strategic asset allocation is far more important than tactical allocations, we’ve known that for a long time.

Your comment is as relative as saying one should have invested in Amazon instead of Shoprite. Not sure there is any point?

Maybe we are not following each other. Taking inflation +7% is as irrelevant as any ofher measure

Comparing to US Equity is as irrelevant

The only thing that is relevant is cost comparison. You can buy SPY which is a massive S&P500 ETF at below 0.1% expense ratio, So park US equity at their returns. SA funds compete against SA returns

Virgin: my suggestion was pointed the other direction. Expenses is a major part of the weak performance of SA fund managers

You mean if you added 1.5 to 2% to the SA numbers the underperformance vs US is solved…not by my math

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