Show me the money

An analysis of local equity funds managed by South Africa’s largest asset managers reveals that they all significantly underperformed the S&P 500.

Asset managers typically slate any comparison of the performance of South African equity funds with that of an international index fund, like the S&P 500, in US dollars.

The Standard and Poor’s 500, or simply the S&P 500, is a market index that tracks the stock performance of 500 of the largest listed companies in the United States.

Local equity funds, in comparison, must invest a large portion of their funds in companies listed on the Johannesburg Stock Exchange (JSE).

Their mandate requires them to focus on South African equities, which exposes them to the sluggish local economy.

The argument that the S&P 500 comparison is unfair to South African equity fund managers if used as a performance metric is valid.

However, it is a valuable measure to assess whether local equity funds are a good investment for South Africans looking for the best returns.

Financial advisers specialise in this area. They tell their clients where the best opportunities are and where to invest their money.

One of South Africa’s best-known financial advisers is Brenthurst Wealth Management founder and director Magnus Heystek.

He explained that, as a financial advisor, he has only one mandate – to ensure his clients get the best returns and protect their wealth.

He was among the first South African advisors to encourage his clients to invest in the United States and avoid South African stocks.

His firm partnered with some of the world’s biggest fund managers, including Franklin Templeton, Fidelity, and Vanguard.

Brenthurst also established two offshore funds – the Brenthurst Global Balanced Fund and the Brenthurst Global Equity Fund.

Through these initiatives, Brenthurst benefitted from the decade-long bull cycle in US technology shares.

“It turned out to be a great decision. We are pleased to see so many asset managers now advise their clients to move money offshore,” he said.

He recently commented that the only thing that counts when selecting fund managers is their historical performance. “Everything else is marketing drivel,” he said.

He cautioned investors to be especially alert to phrases such as “well-positioned to capitalise on the upturn”.

“It presupposes advance knowledge of market events, which we know is dangerous,” Heystek explained.

This raises the question of how South African equity funds have performed against the S&P 500 over the last five years.

The table below answers that question and paints a bleak picture of South African equity funds compared to the US market over the past three-year and five-year periods.

It should be noted that many investment specialists, including Heystek, have become more optimistic about the local market.

“After ten years of saying things are bad, I’m saying things are starting to look generally a little bit better,” Heystek said.

However, it contained the caveat that the Government of National Unity sticks to its task and does the right thing.

Fund	3Y	5Y
Vanguard S&P500	13.02%	15.63%
Sanlam Investment Management	1.77%	5.31%
Allan Gray	5.13%	5.07%
Stanlib Multi-Manager	2.71%	4.98%
M&G	4.39%	4.79%
Momentum	2.10%	4.01%
Ashburton	3.20%	3.38%
Coronation	10.16%	3.17%