Local equity funds are rewarding investors so far in 2022

By the time I got to the kitchen for breakfast, it was Les Franken’s turn. He was the face of a famous insurance house’s life insurance and funeral policy plan for many years. For those of you who blocked out these advertisements or if you just weren’t born yet, the purpose of these advertisements was to instil fear. Les would always tell us about a person in someone’s family who passed away, leaving behind their family with insufficient funds to continue living as they did before.

It was aimed at scaring people to the point where they felt uncomfortable leaving the house without proper insurance. And then he would tell everyone about the solution to the problem with a big smile. I do believe that you should be adequately insured, and this insurer has undoubtedly provided cover successfully over the years. However, the tactics they used back then were quite unconventional for their time.

These same scare tactics have started appearing in South African investments. If the aim is to promote offshore investments, some tend to place negative emphasis on South African fund managers. When the focus falls on actively managed funds’ fee structures, many are quick to point out how active fund managers haven’t been able to outperform their passive peers. When we look at 2020, many experts pointed out that 30% of local share portfolio managers did not outperform the FTSE/JSE All Share Index (JSE).

I studied the actual figures, and when you have a look at all South African general equity funds with R1 billion or more assets under management, you will see that indeed that was the case, with only 28.6% of those fund managers who managed to outperform the JSE. This message was broadcasted far and wide, and I felt compelled to stand up for these fund managers. In most cases, a fund manager’s mandate is not only to find the best growth, but also to manage an investor’s risk. What does this mean? Simply, that you are looking for the best growth at the lowest possible risk.

I know that good news doesn’t sell as well as bad news, but I firmly believe in credit where credit is due. When we consider a much more challenging year like 2022, I think it becomes clear why there is, and always will be, a space for active fund managers in a well-diversified portfolio. From the beginning of 2022 until the end of August, 83.7% of the abovementioned SA general equity fund managers have managed to deliver better returns than the JSE.  

When we stretch this period a little further to 5 years (ending 31 August 2022) and focus on only the average returns of the top 10 largest  (according to fund sizes) SA general equity funds, you will see why you shouldn’t always listen to short-term noise in the media.

Graph: Average Top 10 Largest SA General Equity funds versus FTSE/JSE All Share Total Return

Source: Refinitiv Eikon

Without singling out any of these funds, these ten fund managers outperformed the JSE by an average of 1.84% per year, after costs. Please take note that I have used each of these ten funds’ most expensive fund classes in my analysis.

My message is sweet and short. Don’t lend your ears to bad news alone. Be wary of scare tactics, and more importantly, beware of only focusing on last year’s winners. Always consult a professional adviser or wealth manager to get expert advice. And finally, if investments were a cricket match, it certainly wouldn’t be a one-day match. Give your investments enough time and attention to reap better rewards over the long term.