Presented by Brenthurst Wealth

When fund managers tell little porkies

Marketing is an essential part of the investment business. Most fund managers spend about half their time doing presentation to potential investors, advisors, trustees and whoever cares to listen.

Without adequate presentation skills you won’t get far in the investment business. You also have to look the part and dress the part.

Over the years I must have attended hundreds of presentations by fund managers from local to offshore fund managers in faraway countries such as the UK, USA and even Japan.

Some fund managers are brilliant presenters, obviously schooled well in their craft by inhouse company trainers. And they almost always are snappy dressers, with brilliant white teeth and wavey hair. Almost like the presenters on Bloomberg –the so- called “money honeys”—who take dental whiteness to a new level.

Some presenters make a lasting impression, simply by being themselves and being honest. I include in this group people like the late Dr Simon Marais from Orbis/Allan Gray and Jeremy Gardner from Ninety One, whom I’ve been watching and following for more than 30 years.

But sometimes certain presentations are just over the top, hard selling a fund almost like a second-hand car salesman or oriental rug salesman in a Turkish bazaar.

Over the years I have made a habit of keeping notes of over-reaching by fund managers. When a wild and woolly forecast is made I make little notes in my diary for use many years later, to see how these forecasts have turned out. The American investment landscape is much worse than the local one.

In the US forecasts are often made about the end of the world/US dollar/Wall Street which scares the heck out or ordinary investors, but is all part of the investment game.

Almost 5 years ago the giant Old Mutual investment company went on a roadshow to their inhouse investment advisors and the press to present their latest views on the market. I personally did not attend but I read the news reports and followed the gushing interviews which followed on the various tv-programmes that evening and next day.

This was in the beginning of 2018 and the JSE had already become a laggard in the global investment stakes, relative to what world markets were doing.

It was clear to me funds were not flowing as well as expected into local assets and that something needed to be done.

SA’S Dr Doom

At the time I had a strong view that the JSE would not be great investment destination for local investors, something that got me labelled as SA’s Dr Doom.

“JSE to beat the world average over the next 5 years”, the headlines blurted on SA’s premier finance website early in March 2018. It’s a pity the article is behind a paywall but fund manager Zane Wilson was making the case that in the following 5 years—the period fund managers like to measure their returns—the JSE would outperform world markets and probably be the best place to invest your money. Oi!

This must have been marketing manna from heaven for the salesforce who could go round gathering new investments on the back of the Business Day’s headline.

After all, if you don’t believe me, believe the Business Day.

I can imagine the high fives in the Old Mutual’s marketing department the next day when they saw that headline.

Back to the future

However, I thought, this was an article to keep and return to some time in the future. Well, that future is now, almost 5 years later and enough time to have elapsed to judge how accurate that forecast/pronouncement was.

By all measures the forecast could not have been more wrong. And investors who might have acted on it and invested their capital or pension into one fof the OM’s equity based funds must be feeling really peeved with their returns today.

I compared the investment returns of the OM Investors Fund, its flagship SA equity fund, to the inflation rate, JSE and the S&P 500.

0ver the past 5 years the fund has returned a paltry 3,9% per annum, which is not only lower than the inflation rate of 4,9% over the same period but it couldn’t keep up with the FTSA/JSE Index.

Hell, even a money market fund would have outperformed the Investors’ Fund.

But its when the returns are measured against the rest of the world that the shocking performance is really exposed.

The S&P500 index returned almost DOUBLE as much as the OM Investors fund in rands, giving a return if 16,28% per annum over 5 years,

Let’s look at it in rand terms, assuming an investor put R10 000 into the OM Investors, JSE and S&P 500 fund 5 years ago today.

The OM fund has a value of R12 806,62, the JSE R15 357 and the S&P500 R21 255.

The OM/Wilson forecast could not have been more wrong. And it would be nice if someone from BD has a chat with OM to get some comment for this massive underperformance.

But wait, there is more…

Last week we had an almost identical repeat of the OM story. This time around it was David Knee, chief investment officer of M&G (formerly known as Prudential) confidently making the same prediction. In an article on 8th of September in Business Day (again) Knee confidently makes the same prediction.

“In our view local assets are still clearly offering better prospective returns for the risks involved over the next 3 to 5 years than their global counterparts”.

So let met get this right: The JSE, which is suffering from a massive outflow of foreign capital (more than a trillion rand has left the market over the past 5 years), is rapidly shrinking and its companies are suffering from extended loadshedding, collapsing rail services and a rising debt problem and possible debt default, is the place to be with your long term capital.

Better than the 60 or so stock markets all around the world where you can choose from 10 000 fast growing companies such s Apple, Google, Nvidia and Tesla, just to name a few.

As they say in the comic books: pull the other one! I am not buying this story, again.

Magnus Heystek can be reached on magnus@heystek or followed on X on @magnusheystek

By: Magnus Heystek, Investment Director Brenthurst Wealth.


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