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SA’s top performing global equity funds

Taking advantage of a wider opportunity set.

Analysis by Allan Gray suggests that South African investors should hold 30% to 50% of their portfolio offshore. This is the optimal level of diversification.

However, those who save exclusively through retirement products are restricted to the 30% allowed by Regulation 28. This means that most South Africans are probably under-exposed to international markets, since the majority of savers have all of their long-term money in retirement funds.

The reason investors need to be aware of this isn’t just because they have to consider the risks of having a very high proportion of their assets linked to the fortunes of a single country and a single currency, but also because they might be missing opportunities available elsewhere. The South African listed market makes up only around 1% of the world’s market capitalisation, and there are only around 400 companies on the JSE.

This compares to the over 43 000 companies listed on exchanges around the world according to the World Bank. This indicates how the opportunity set outside of our borders is far greater than can be found domestically.

Everyone should therefore consider whether they need to increase their offshore exposure beyond that which they have in their retirement funds. As Allan Gray notes: “Offshore diversification is core to a successful long-term investment plan.”

There are a number of options, but the simplest is through locally-registered unit trusts that give international exposure. These generally don’t require big investment amounts and are as easy to access as any other local fund.

According to the latest statistics from the Association for Savings and Investment South Africa (ASISA), most of the money going into these global funds is placed in equity portfolios. This is not surprising since the yields on cash and fixed income assets in South Africa has been much higher than can be found internationally. Investors have therefore been looking for growth in offshore stocks.

Over the past decade, they have also been rewarded for doing so. In the 10 years since the start of June 2008, the MSCI World Index has returned 10.85% in rand terms, while the FTSE/JSE All Share Index has delivered only 9.01%.

Consider also that over this time the rand has moved from around R8 to the dollar, to its current levels of over R13. South Africans with some of their money invested internationally have therefore also protected their global purchasing power.

It is interesting to note how individual funds have performed over this time. The table below lists the top global equity funds over the past 10 years.

Global equity fund performance to May 31, 2018
Fund 10 year annualised return
Allan Gray Orbis Global Equity FF 12.52%
Old Mutual Global Equity Fund A 12.23%
Coronation Global Opportunity Equity [ZAR] FF A 11.11%
Alexander Forbes Investments Global Equity FF 10.18%
Investec Global Franchise FF A 9.31%
Nedgroup Investments Global Equity FF A 8.98%
Discovery Global Equity FF 8.92%
Stanlib Global Equity FF A 8.59%
Investec Worldwide Equity FF A 8.52%
Prudential Global Value FoF A 8.30%
MSCI World Index 10.85%
FTSE/JSE All Share Index 9.01%
Category average 8.33%

Source: Morningstar

It is significant that the top three funds on this list have all out-performed the MSCI World Index. This is not a simple task, and it suggests how well managed these funds are.

It should be noted that they don’t always show this out-performance. There are times when even their long term numbers have fallen below the index returns, but this period has been a constructive one for these managers.

Investors should also take note that these three funds are all very different, and should therefore be aware of how they are positioned.

The Allan Gray Orbis portfolio is a value fund that sometimes takes quite contrarian positions, such as its high exposure to Russian stocks in recent years. Its performance can therefore sometimes be quite ‘lumpy’ and volatile over short periods.

Old Mutual has a far more diversified approach, using a range of factors for selecting stocks. Its portfolio is therefore extremely broad. It’s largest holding is Apple, which is just 1.4% of the fund. In comparison, all of the top 10 holdings in the Allan Gray Orbis portfolio carry at least double that weighting.

The Coronation fund is a multi-manager offering, giving investors exposure to five different global asset managers. It also tends to have a higher exposure to emerging markets than its peers.

Looking over the shorter-term, the table below shows the top performing funds in this category over the past five years.

Global equity fund performance to May 31, 2018
Fund 5 year annualised return
Old Mutual Global Equity Fund A 16.50%
Discovery Global Equity FF 14.04%
Allan Gray Orbis Global Equity FF 14.02%
Alexander Forbes Investments Global Equity FF 13.26%
Stanlib Global Equity FF A 12.80%
Coronation Global Opportunity Equity [ZAR] FF A 12.68%
Prudential Global Value FoF A 12.45%
Nedgroup Investments Global Equity FF A 12.42%
PSG Wealth Global Creator FF A 12.30%
Element Global Equity SCI Fund A 12.23%
MSCI World Index 14.56%
FTSE/JSE All Share Index 9.16%
Category average 11.02%

Source: Morningstar

Over this period, only the Old Mutual portfolio has produced a higher return than the MSCI World Index. This proves what a difficult hurdle it is to beat.

It is however notable that the average fund in this category has produced significantly better returns than the FTSE/JSE All Share Index. This highlights how having some international exposure would have benefited local investors.

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COMMENTS   33

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Thanks Pat. Always most helpful every time i have to make these type of decisions.
I assume these performances are alĺ after fees.

If one looks at 25years Orbis beats the Msci by even bigger margin than over 10 years. After fees. Orbis is still largely my punt at this point in time where markets have had such a strong run for so long now.

Any better ideas anyone?

Global diversification is hugely important! How one accesses this however, is a different question..

Passive is surely the way to go given the woeful performance of the active managers within this category. NB these are the top 10 funds in our market (so not to mention the rest) and one is making this assessment with the benefit of perfect hindsight – no guarantee that the one or two that did well will be able to repeat this. Only 1 fund outperformed over 5 years.

The Local ETF market has seen a strong pick up in listings tracking various global indexes. Clients & IFAs should be putting far more pressure on LISPs to include these ETF products within the main stream of our savings & investments market.

Gareth Stobie
CoreShares

Punting your own agenda – sneaky Gareth! Two important points –

We’ve not been through a major stock market crash in the past 5 years. The 10 year numbers do include (part of) such an event though and an active/passive comparison is thus far more meaningful. You don’t want to be in an equity index when the market crashes.

A large component of SA money going into offshore equity funds has gone into the funds listed above. Certain of those funds have very long, strong track records, so investors shouldn’t look beyond them. Your comment on the “woeful performance of the active managers” is certainly too broad a claim to make.

Hi Gareth,

Any chance CoreShares could launch an ETF that tracks this: MSCI World Mid Cap Index?

But Patrick, didn’t you have a go at Magnus Heystek just two weeks ago for strongly recommending offshore investments?

Ha! No, I didn’t. I questioned anyone who had recommended taking all of your money offshore based on a one-way bet on the currency. That is clearly bad advice, and wealth destructive. That is very different to good diversification and making use of the opportunities in international markets that can’t be found here.

but majority of the top 40 are global corporations whose fortunes are not just tied to SA…

In the article it recommends between 30% and 50% should be held offshore, which is fair enough. My biggest concern is that these funds (paid over to whichever company you choose to do your transaction with) are externalized temporarily, which by its very nature is not really externalized. If you sell your units there is no vehicle whereby you can keep the proceeds offshore in a foreign bank account, the funds are returned to you in Rand by the company, so in the final analysis you have not externalized any funds, the only externaliser of funds is the company.
So the marketing of these products is subtlely misleading

There are a few other options such as Satrix Nasdaq 100 Prtf ETF (STXNDQ), SYGNIA ITRIX 4TH IR GLOBAL EQUITY ETF, and BizNews US exponential bundle that might perform better as they are more focused. The Biznews US exponential bundle includes Facebook, Apple, Amazon, Microsoft, Google, Tencent and AliBaba can be traded through EasyEquities in USD so you would have to use your forex allowance. This would diversify further any global holdings and add positive Alpha to any portfolio.

Old Mutual Global Equity Fund is still my favourite global fund.

With fees of around 3.5% pa for Old Mutual, you are mad

Well it is sorta at the top even with fees?

Not sure how you expect the Old Mutual fee to be low with it outperforming the index. How do you think the math of fees work?

Where do you get 3.5%? Most expensive class total investment charge is 2.26% and cheapest is 1.4%. Steep by tracker standards but at least be accurate!

Get it through PSG / Equinox who negotiate rates and you get wholesale rates.

Then be fair and show us all the fees. It’s like saying at retirement, ‘here is all your millions you’ve earned!’ you then smile with amazement and can’t wait to spend it as all that hard work paid off… oh wait, says the adviser, if I take off my fees, then tax, then xyz… wait wait sorry sir, you are actually left with… 2 bucks, enjoy your retirement

Crazy to think that you can get the same return from fixed deposits for close to zero risk as to what the 5y and 10y JSE returned.

So, low cost global passive for equity exposure and local fixed income for yield, got it!

Some of my investments in foreign equity unit trusts via local managers were badly timed and took years to show growth. Right now I have no regrets since these have now outperformed local funds.

Before or after fees? Maybe we could have a new list which includes ETF’s as well?

Just out curiosity, do you consider ‘offshore ETF’s’ eg. Sygnia Itrix MSCI, FTSE etc etc.. as investing offshore? I buy these through ABSA stockbrokers locally in Rands, but always wondered if that is what the financial experts consider as offshore investing?

Good question as Allan Gray research didnt include the foreign exposure/ earnings most JSE top 40 constituents have

Are the quoted returns net of ALL fees incl placement and advisory? ie $1000 in $xxxx out clear pre tax

I wonder how the results stack up after the TER fees are deducted…

Active vs Passive:

Active:
10 year annualised return of the (top performing activey managed) Allan Gray Orbis Global Equity FF, 12.52% less TER 2.12%
10.4 % annualised return…

VS

Passive:
Ashburton Global 1200 Equity ETF 10 year annualised return of , 11.7% less TER of 0.45% yields an anualised return of
11.25 %.

That is not how it works dude, fees always shown after fees, you should add the 2.12 to the 12.52 for AG to get to performance before fees and for your passive example add 0.45 to 11.25

No need to try and lower the return by wanting to deduct TER. All fees for funds are deducted daily so all returns are after ALL fees.

return published should be net of all fees (excl advice)

That is the simplest way. Investment = cash out of your pocket. Return = cash into your pocket if you withdrew your investment after a year. No smoke and mirrors. If that was honestly done, then comparing investments would be a pice of cake. As it stands the promised / declared returns are becoming close to a politician’s promise. It is made as complicated as possible to ensure more wriggle room. One step further away are medical aid benefits. They even have legislation assisting the hiding of real comparisons being made. I guess it might also be designed to assist brokers making a penny or two.

That’s all well and good but you’d be better off if you’d invested in the S&P500

You are right but if the term was 15 years instead of 10 then the JSE is by far the winner.

“Consider also that over this time the rand has moved from around R8 to the dollar, to its current levels of over R13.” So a very significant portion of the global funds mentioned,derive their performance from rand weakness. This implies that a large portion of the performance fees charged by these companies are derived from rand weakness which needs to be addressed urgently since rand depreciation is not a function of a managers skill.

This happens to be true over the specific period. If we look from Jan 2016 the Rand is 12.5% stronger yet a fund like Coronation Global Opportunity is up 17% for an out performance of 29% and to me they deserve their fees charged. Old Mutual Global is up even more at 23%.

I would really like to suggest you read the best book on investing I have ever read. Investing Demystified by Lars Kroijer.
Lars explains why everyone should only have 1 equity fund, a low cost global equity tracker fund with an annual cost below .25% eg HSBC Global Equity Tracker fund at 0.15% cost, or Vanguard World FTSE tracker at 0.25%

Lars explains and proves VERY SIMPLY what is stated in this article – after costs you cannot beat a global equity tracker fund.

If you don’t want to read this excellent book then watch Lar’s series of videos at:

https://www.youtube.com/watch?v=gM4KEJQ_Z5U

Allan Gray and OM have done well, whether by luck or skill we will probably never know. Having been a client of AG for many years I like their approach to investing and client service (you get an answer from a person when calling the service center within about 15 seconds, contrast that to Investec and probably OM as well). I get a bit tired of the ETF providers in this country who keep banging the low cost drum. They are not low cost when compared to their international equivalents such as Vanguard, and certainly do not provide top quality research to back up their offerings. With the ease with which one can externalize funds these days it is hard to justify investing in these high cost local ETF’s.
Building an appropriate investment portfolio is so much more than the active/passive debate.

Net return over the long term is what matters. Product costs are irrelevant, unless all products are returning the same/similar. Anyone who invests based only on product costs is making a mistake.

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