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SA’s top performing equity funds

Over one, five and ten years.

CAPE TOWN – At the end of last year there were 124 domestic general equity unit trusts in South Africa that had at least a one-year track record. How much of a boom this represents in the local asset management industry is reflected in the fact that only 46 of those funds have been active for more than ten years.

The last decade has seen a proliferation of new managers and new funds, and it has become increasingly difficult for investors to identify the funds most suitable to their needs. A fair place to start is however always with their historical performance.

It bears repeating that just because a fund showed a certain level of returns in the past, it does not mean that it will repeat that in the future. However, those that show a consistent level of performance over the long term do have a higher likelihood of maintaining that consistency.

The shortest time one should really consider looking at an equity fund’s performance is over one year. The below table reflects the top performing equity funds of 2014.

Top SA general equity unit trusts to 31 December 2014
Fund 1 Year total return
Anchor BCI Equity Fund 24.72%
Clarus MET Optimal Fund 21.16%
Grindrod Equity Income Growth Fund 20.72%
Marriott Dividend Growth Fund 20.34%
Clarus MET Value Fund 19.99%
Indequity Technical Fund 19.66%
Fairtree Equity Prescient Fund 18.25%
IP Equity Fund 17.95%
Satrix Momentum Index Fund 17.91%
Momentum Best Blend Specialist Equity Fund 16.76%
FTSE/JSE All Share Index 10.88%
Source: Morningstar

All ten funds comfortably out-performed the market. This is not a trite observation, because it puts them in the minority.

Out of 124 funds, only 59 delivered a return above the FTSE/JSE All Share Index. That means 65, or 52.4%, did not.

It is also worth noting that the majority of the top ten funds from last year could be considered very small. The Marriott Dividend Growth Fund is the largest of them at R2.7 billion, with only the Fairtree Equity Prescient Fund and Momentum Best Blend Specialist Equity Fund also over R1 billion.

In contrast, five of the funds run portfolios of less than R100 million. That is tiny if one puts it against the Allan Gray Equity Fund’s R40 billion in assets.

A further point of interest is that not one of the top ten equity funds of 2013 makes it into the top ten of 2014. Of 2013’s top 10, the only two funds that made it into the top 30 last year were the Foord Equity Fund and PSG Equity Fund.

Finally, it should be noted that an index tracker finds its way into the top ten. The performance of the Satrix Momentum Index Fund over the last year could be considered a fairly compelling argument for the potential of advanced beta.

The performance of an equity fund over one year is really more interesting than telling. What an investor really wants to see is consistency and it is really over longer periods that managers should be judged.

The below table shows the top 10 funds over five years to the end of 2014.

Top SA general equity unit trusts to 31 December 2014
Fund 5 Year annualised total return
Foord Equity Fund 20.89%
Harvard House BCI Equity Fund 20.34%
Sasfin MET Equity Fund 20.19%
Momentum Best Blend Specialist Equity Fund 20.09%
Marriott Dividend Growth Fund 19.44%
PSG Equity Fund 19.05%
Imara MET Equity Fund 18.82%
Stanlib Equity Fund 18.34%
Coronation Equity Fund 18.15%
Old Mutual Active Quant Equity Fund 17.97%
FTSE/JSE All Share Index 15.79%
Source: Morningstar

Here are funds from which investors are almost used to expecting a certain level of consistency. Five of them – the Foord Equity Fund, Harvard House BCI Equity Fund, Momentum Best Blend Specialist Equity Fund, PSG Equity Fund and Coronation Equity Fund – appeared on the same list last year.

These funds tend to be slightly more substantial in size. The Foord Equity Fund has R8.3 billion in assets under management, while the Coronation Equity Fund manages R7.6 billion. The Stanlib Equity Fund’s portfolio is worth R3.8 billion.

The Harvard House BCI Equity Fund and Sasfin MET Equity Fund do however fit into the tiny category. Both have assets under management of only a little north of R100 million. 

There are 85 unit trusts with five year track records, and only 25 of them have produced returns over the last 60 months better than the FTSE/JSE All Share Index. That is just 29.4%.

To illustrate the argument that investors should not put too much stock into one-year track records, there are five funds in the top ten list over one year that have also been around long enough to have five-year figures. Of those five, the only two that have beaten the index over the longer period are those shown in the top ten above. The Clarus MET Value Fund, Indequity Technical Fund and Clarus MET Optimal Fund all come in under the index over the last 60 months.

The real class acts amongst South African equity funds are however those who have performed the best over ten years. These are funds that have produced an outstanding level of consistent performance.

The below table shows the funds with the best ten-year returns to the end of 2014.

Top SA general equity unit trusts to 31 December 2014
Fund 10 Year annualised total return
Coronation Top 20 Fund 20.39%
Foord Equity Fund 20.10%
Prudential Equity Fund 19.00%
Coronation Equity Fund 18.84%
Absa Select Equity Fund 18.79%
Prudential Dividend Maximiser Fund 18.61%
Allan Gray Equity Fund 18.30%
SIM General Equity Fund 18.18%
PSG Equity Fund 18.14%
Nedgroup Investments Value Fund 17.83%
FTSE/JSE All Share Index 18.00%
Source: Morningstar

The funds in this list are exclusively larger in size. The PSG Equity Fund is the smallest of them at just under R2 billion.

That is understandable, given that the growth in the number of small unit trusts is a more recent phenomenon, and one would expect that funds that have shown such a long period of strong performance would naturally become more popular.

No fund appears all three lists, although the Marriott Dividend Growth Fund comes very close. It is 12th over the last ten years.

Perhaps the most staggering thing to register here, however, is that not all of the top ten funds over the last ten years have out-performed the index. Only nine managed to do so.

In a universe of 46 funds, that is just 19.6%.

To be completely fair to active managers, one should perhaps compare their performance to the best index-tracker over this period, which was the Stanlib Index Fund. It’s return of 17.16% was below the index itself, but would still have put it 13th on the list, beating 71.7% of the category.

For more, visit Moneyweb’s Click-a-unit trust/ETF tool.


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