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The shifting Top 40

Miners make a comeback, while some big names struggle.
Large price movements have resulted in the make-up of the index looking quite different to how it did three years ago. Image: Shutterstock

Over the past 90 days, the FTSE/JSE Top 40 Index is up 2.2%. Yet over this period, only 12 of the 41 stocks in the index have made gains.

Two of those in positive territory are Naspers and Prosus. Seven more are mining stocks. This means that outside of these two themes, the only large cap shares that have gone up over the past three months are British American Tobacco, Mondi and Investec.

Even then, none of these three counters are at their three- or five-year highs. As the table below shows, they are some way off their recent peaks.

Share price highs
Counter High Date Current
British American Tobacco R969.90 31-05-2016 R655.09
Mondi plc R416.10 14-09-2018 R331.20
Investec plc R122.11 26-11-2015 R87.35

Source: ProfileData

Overall, only half of the stocks in the Top 40 are up over the past three years. Apart from Clicks, all of the retailers have lost value, the two big property stocks are both down, and the financials have been a mixed bag.

There is, however, no question about who the big gainers have been over this period. As the table below shows, the three- and five-year performance of the big commodity players on the JSE has been spectacular.

Performance of JSE-listed miners
Counter 3 years 5 years
BHP Group 46.03% 16.12%
Anglo American 96.15% 91.54%
AngloGold Ashanti 114.21% 154.90%
Impala Platinum 232.24% 109.91%
Sibanye Stillwater 68.39% 59.79%
Goldfields 168.58% 127.49%
Anglo American Platinum 335.00% 260.43%

Source: ProfileData

This has also fundamentally reshaped the make-up of the index.

Back in 2009, at the height of the commodity super cycle, mining counters made up 43.77% of the Top 40. BHP Billiton (as it was then) and Anglo American on their own were each more than 10% of the index, which also contained a number of smaller commodity stocks like African Rainbow Minerals, Exxaro and Lonmin.

By the end of 2015, however, mining stocks had slumped and basic resources accounted for just 10.5% of the Top 40. More than 60% of that was BHP Billiton alone.

Over the past few years, the rebound in these counters has taken basic resources back to around 30% of the index. Most remarkably, Impala Platinum, which by the middle of 2018 had fallen 95% and was the most shorted stock on the JSE, is now twice the size of Shoprite.

The ups and downs

As the table below shows, however, it’s not just the gains made by mining stocks that have had an impact. Some of the largest shares on the JSE have declined sharply in the last three years.

Top 40 share price performance
Counter 90 days 1 year 3 years
Naspers 19.32% 30.82% 86.51%
BHP Group 0.45% -2.53% 46.03%
Richemont -0.88% 6.48% 11.06%
Anglo American 6.73% 11.12% 96.15%
Standard Bank -8.86% -18.38% 10.82%
FirstRand -9.33% -8.07% 19.05%
Prosus 14.92% n/a n/a
British American Tobacco 16.20% 25.25% -19.51%
Mondi plc 4.77% -4.12% 10.48%
MTN Group -7.36% 0.55% -26.87%
AngloGold Ashanti 19.76% 63.23% 114.21%
Sanlam -11.40% -9.37% 8.31%
Sasol -24.25% -48.35% -42.99%
Impala Platinum 45.78% 215.47% 232.24%
Sibanye Stillwater 70.21% 215.00% 68.39%
Bidcorp -7.87% 7.16% 36.62%
Absa Group -12.39% -21.02% -11.15%
Remgro -8.43% -13.55% -19.97%
Goldfields 46.25% 98.38% 168.58%
Anglo American Platinum 11.62% 88.49% 335.00%
Old Mutual -13.77% -26.73% -20.89%
Nedbank -19.00% -32.82% -19.47%
Capitec Bank -4.23% 9.52% 94.53%
Vocadom Group -7.99% 0.28% -19.96%
Bidvest Group -13.14% -6.85% 16.29%
Clicks Group -3.82% 33.40% 94.27%
RMB Holdings -9.80% -4.21% 19.21%
Growthpoint -14.93% -22.56% -27.06%
Investec plc 6.97% -2.51% -6.67%
Shoprite -6.27% -32.17% -42.32%
Multichoice Group -18.20% n/a n/a
Nepi Rockcastle -1.02% n/a n/a
Mr Price Group -7.10% -23.41% -0.16%
Aspen -9.29% -24.80% -62.27%
Woolworths -31.10% -10.55% -42.21%
Discovery -19.16% -30.53% -12.73%
Redefine -21.91% -36.13% -43.91%
Spar -15.55% -13.20% -4.32%
The Foschini Group -12.79% -18.21% -14.40%
Tiger Brands -23.21% -39.42% -59.85%

Source: ProfileData

Most notable among these is Sasol, which has fallen 43% since early 2017. At the start of that year it was the sixth largest stock in the Top 40. It has now dropped out of the top 10, and has a market capitalisation only slightly larger than Impala and Sibanye Stillwater.

The biggest percentage falls have come from Aspen and Tiger Brands, both of which are down more than 60%. Shoprite and Redefine are both off more than 40%.

At the same time, a number of companies have fallen out of the Top 40 entirely. There are no longer any hospital groups or construction and building materials companies in the index, and the dual-listed UK property groups have also dropped out.

The result of these large price movements is that the make-up of the Top 40 looks quite different to how it did three years ago. This is illustrated in the table below.

Top 40 supersector breakdown
Supersector Weighting
Dec 2016 Jan 2020
Chemicals 3.86% 2.24%
Basic Resources 18.55% 29.89%
Construction & Materials 0.45% 0.00%
Industrial Goods & Services 4.83% 1.17%
Automobiles & Parts 0.07% 0.00%
Food & Beverage 2.53% 0.55%
Personal & Household Goods 13.22% 12.58%
Health Care 3.78% 0.75%
Retail 7.32% 6.43%
Media 13.61% 0.76%
Travel & Leisure 0.65% 0.00%
Telecommunications 5.16% 3.62%
Banks 8.59% 11.59%
Insurance 5.60% 4.22%
Real Estate 7.04% 2.47%
Financial Services 4.27% 2.94%
Technology 0.47% 20.79%

Source: FTSE Russell (note that Naspers was reclassified from a media company to a technology company)

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The purpose of index investing. You win some and lose some but are still invested in the market rather than getting wiped out.

Offshore index ETFs have been very good for some time.

That sector breakdown is quite scary – half the exposure of the Top40 is now to Basic Resources and to Naspers. Whereas the overall market, on the surface, appears to have moved sideways in recent years, underneath there have been seismic shifts. The performance of the mining stocks has covered up the damage done to the local economy, and to SA-focused stocks.

We now have massive concentration risk in a highly cyclical sector, with no worthwhile safety net when that cycle turns. How did KG Rabada once put it? “It’s not looking good.”

The JSE is no longer an investment destination but does offer some trading opportunities from time to time.

This isn’t unique to South Africa. Tech stocks in the USA and property on the UK are doing the same.

End of comments.

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