Imagine for a second that you had invested a lump sum of R100 000 in one of the country’s largest equity funds in November 2016. Perhaps your financial advisor suggested one of the well-known names (no one ever got fired for buying IBM)? Or maybe you were persuaded by one of those tug-on-the-heartstrings TV ads?
What would that R100 000 be worth today?
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In this exercise, Moneyweb compared only equity unit trusts with R10 billion or more in assets under management as per Association for Savings and Investment South Africa (Asisa) data to end of June 2021. Importantly, this included balanced funds – as these are realistically the only option for retirement savers under the limitations imposed by Regulation 28 – as well as so-called ‘low-equity’ funds, as per the Asisa definition.
One may argue that funds with assets of between R1 billion and R10 billion would, because of their size, find it easier to outperform the larger funds. This is not untrue, but performance is obviously not uniform across the board.
Unsurprisingly, the three funds in this comparison that track global indices have far outperformed the rest. R100 000 invested in the CoreShares S&P 500 – which is unit trust wrapper that tracks the exchange-traded fund (ETF) – would be worth over R236 000 today.
That’s a return of 137%.
One may argue that this performance was due to the weaker rand, but the currency has only depreciated by 12% against the dollar since November 2016 (R14.08:$1). Even the Satrix Itrix Eurostoxx 50 unit trust – which tracks an index that has performed moderately in local currency terms (42% over five years) – is up 87%, with a value of almost R190 000 today.
Locally, the Fairtree Equity Prescient Fund has well-outperformed all others in this comparison, with a return of 84%. Sticking the R100 000 in the market and simply tracking the top 40 (using the Satrix 40 Portfolio) would give you R167 790 today – a return of 68%.
This is the value of R100 0000 today if invested five years ago in the five largest funds in the country (excluding money market and non-rand denominated offshore funds):
It is astonishing that the Allan Gray Balanced Fund has barely outperformed its Money Market Fund (included in this comparison as a baseline as it’s the largest following Absa’s closure of its fund). This performance is practically indicative of any money market fund.
Perhaps more alarming is that the Allan Gray Equity Fund has underperformed both its Balanced Fund and its Money Market Fund.
A number of the so-called preservation type funds have also noticeably underperformed the money market funds.
* Class A funds used when more than one class exists
* Data from FundsData as at November 22, 2021
Bottom-of-the-table Old Mutual’s Investors Fund (with R13 billion under management as at end-June) has not beaten inflation over the last five years. R100 000 invested in this flagship fund in November 2016 would be worth not even R120 000 today. The fund’s fact sheet confirms that it has delivered less than half the performance of the benchmark (3.3% annually for Class A versus 6.7%) over the last five years.
Stats SA reports consumer price inflation of 22.7% over the last five years (from December 2016).
For retirees, this number is ostensibly 22.9%. For those who are more well-off, inflation over the period has almost certainly been close to 10 percentage points higher – in other words, 33%.
Importantly, this comparison does not necessarily include all fees. It is simply measuring the total return index over five years (which includes any dividends or interest payments). When factoring in the impact of fees (a not-uncomplicated task), the performance of lower-cost index tracking funds will likely be boosted in comparison to the pricier actively managed funds. Over a longer timeline than just five years, the difference will be material.
What this exercise does show is just how destructive the limitations due to Regulation 28 can be when it comes to performance (with Regulation 28, equity exposure is limited to 75%, foreign investment exposure is limited to 30%). Being forced into a Reg 28-compliant balanced fund in a pension investment or retirement annuity has a major impact on returns that is not completely offset by the tax advantage.
This comparison is not, however, about punting offshore investment at the expense of everything else. But with a stagnant economy and a weakening currency over time, investors ought to be carefully considering their options.
R100 000 may not be much to many people. But what if you invested a R1 million lump sum five years ago? Placing it in a flagship balanced fund – or, worse, an underperforming equity fund – could’ve end up costing you more than R1 million.
- CoreShares S&P 500 – R2.4 million
- Sygnia Itrix MSCI World – R2.2 million
- Satrix 40 Portfolio – R1.7 million
- Discovery Balanced Fund – R1.5 million
- Coronation Balanced Defensive Fund – R1.4 million
- Allan Gray Balanced Fund – R1.4 million
- (Any) Money Market Fund – R1.4 million
- Allan Gray Equity Fund – R1.36 million
- Old Mutual Investors Fund – R1.2 million
At a R10 million lump sum, the numbers become depressing.
Certainly makes one think.