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Beware of bullish fund managers

By Magnus Heystek

During March of 2019, the Old Mutual Group went around the country presenting to their advisors and clients with the confident message that “SA equities would be the best asset class in the world going forward”.

This roadshow was reported extensively on radio, television and several business news websites.

This message, no doubt, was relayed to existing and potential clients as an inducement to invest in a new or add more to an existing investment, liberally using the prominence it received on BusinessLive as part of an aggressive marketing campaign.

It is now five years later, long enough to judge whether this positive viewpoint materialised or – as was suspected at the time – contained more than just a hint of marketing overreach.

I think the media is under an obligation to publish the results of the investment performance five years later so investors can form their opinions.

In the United States, there is a financial forecasting scoreboard compiled by Mark Hulbert on the Hulbert Financial Digest, tracking forecasts with the actual outcomes.

Perhaps some local financial websites should consider doing it here in SA, where a wide range of forecasts are made on radio, television and print almost daily. Some of them border on the incredulous.

Old Mutual Investors Fund

Using the investment returns of the Old Mutual flagship fund, the Investors’ Fund, it is clear that it is far from being a wonderful period of outperformance for SA equities when compared to world markets, it was one of the worst periods of relative underperformance when compared to the three major global indices, the MSWI World Index, S&P 500 as well as the Nasdaq.

Putting it mildly, the JSE was NOT the place to be as global markets roared ahead creating substantial wealth for investors in these markets, while the local returns did not even beat inflation over five years but lost an astonishing 12% in USD terms.

The OM Investors fund returned 4.9% per annum since March 2019, while the MSCI World index did 20%, the S&P 500 index 22.7%, and the Nasdaq an impressive 30% per annum over the same period. The local inflation rate was 5.05% per annum over the period.

This is partially also one of the reasons why foreign investors have been persistent sellers of SA equities over the past five years and more, with an estimated outflow of around R700bn over the period. Last year alone an amount of R130bn left the JSE because of foreign selling. What is it that offshore fund managers know that local ones don’t?

Local fund managers are no doubt under pressure with very little growth in assets over the past five years. Last year for the first time in many years the collective investment industry experienced a net outflow of funds.

The local fund management industry has been hit by a triple blow – the outflow of funds by foreign investors seeking higher returns elsewhere (which they have been getting), the increase in the offshore allocation of Regulation 28 retirement funds, up from 30% to 45% of total assets as well as the potential outflow from retirement funds as a result of the so-called 2 pot retirement system.

Fund managers are bracing for a substantial outflow of money from retirement pots as cash-strapped investors withdraw up to one-third of their retirement capital.

On a macro-level SA’s growth rate has just been cut from an estimated growth rate for 2024 from 1.8% to 1% by the International Monetary Fund. Almost simultaneously news broke that SA dropped even further down the list compiled by Global Corruption Index.

At a score of 59 SA is now barely 1 point away from being classified as a “failed and corrupt country”. It is against this background that the latest positive-sounding survey by Bank of America amongst SA fund managers must be judged.

Again, as reported in BD on 31st January 2024, local assets are seen as the “best-performing asset class” for the year going forward, and even over the next five years as bravely forecast by M&G (formerly Prudential).

Note of caution

A note of caution is warranted here. No one wants to be a party pooper, but this view is not shared amongst the investment community around the world.

Magda Wierzycka, CEO of Sygnia, recently warned that the JSE has become “irrelevant” on the world stage, while Johan Rupert, chairman of Richemont, said almost at the same time that global investors are not comfortable investing in a country where the ruling party calls each other “comrade”.

For more than seven years now have local fund managers been beating the drum of “local is lekker”, that the JSE is cheap and offers compelling value” etc.

Much of this is true but perhaps there is a solid reason why the JSE remains cheap and undervalued. Some analysts, even one from Old Mutual, have suggested that the JSE has become a classic “value trap”. Cheap, but cheap for a reason.

It is also incumbent on the financial media to counter these hopelessly optimistic pronouncements and forecasts with counter-balancing views.

Local investors have been handsomely rewarded for not always swallowing these over-optimistic forecasts.

Sygnia recently announced that some of its local offshore funds are due to temporarily close due to the company approaching 45% offshore limits. These funds include the Sygnia Health Care, 4th Industrial Fund as well as the Sygnia AI Fund.

It’s been hard to ignore the returns generated by these offshore funds for instance the Sygnia AI fund, which recorded a return of 76% year on year and an average of 31% per year over 5 years.

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Magnus Heystek is a director and investment strategist at Brenthurst Wealth. [email protected]


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