Important lesson from Piet Viljoen and Magnus Heystek’s R500,000 investment challenge

The R500,000 investment challenge between Piet Viljoen and Magnus Heystek revealed how difficult it is for a fund manager to outperform the market.

The investment challenge originated on BizNews following a years-long debate on whether local or offshore equities offer the best investment opportunities.

Strong proponents on each side argued that their portfolio would outperform the other, with Viljoen and Heystek in opposite camps.

Viljoen argued that local stocks offered better opportunities, while Heystek was convinced international stocks were the best option.

A BizNews reader created an investment challenge, giving Viljoen and Heystek R500,000 each to invest in funds and equities of their choice. It kicked off in November 2021.

Viljoen allocated the full R500,000 to the Merchant West Investments Value Fund and kept it there throughout.

Heystek was more active, which did not help his initial performance. He made a mistake during the stock market downturn. “I panicked and moved some assets to cash,” he said.

He explained that timing the market is tough. You must be right twice – when exiting and re-entering. “I wasn’t, and it cost me,” he said.

“I started off trying to do too much, too much trading, too many switches,” Heystek admitted. “Now, I’m letting the fund managers run it.”

These fund managers include Sean Peche at Ranmore and Ninety One’s European equity portfolio, who made timely bets.

Heystek has made a strong comeback following his poor start to the challenge and is closing in on Viljoen.

With 16 months left in the competition, Viljoen grew his R500,000 to R627,942, while Heystek’s initial sum has grown to R595,872.

Both Heystek and Viljoen have been surprised at how well local equities have performed despite threats of property expropriation, a failing logistics network, and political chaos.

“The stock market isn’t the economy. It’s forward-looking and it’s already discounted most of the bad news,” Viljoen said.

Beating the market is difficult

One thing the R500,000 BizNews investment challenge showed is that it is very difficult to beat the market.

The performance of Viljoen’s Merchant West Investments Value Fund reminds us of the late Charlie Munger’s warning that very few fund managers will outperform the market.

The Merchant West Value Fund has R333 million in assets under management and is managed by Rudi van Niekerk and Piet Viljoen.

The fund’s mandate is to invest exclusively in South African equities listed on the JSE and have the JSE All Share index as its benchmark.

Its investment objective is to provide investors with long-term capital growth, seeking to outperform the JSE All Share index.

The managers aim to meet this objective by following a value investment philosophy. By the nature of the fund’s investment objective, it follows an active management approach. 

This means the portfolio managers actively over- and under-allocate their investment positions relative to their benchmark to outperform the passive index strategy.

Daily Investor compared the performance of the Merchant West Investments Value Fund with passive investments.

These included the Satrix S&P 500 feeder fund, the Satrix MSCI World feeder fund, the Satrix JSE Top 40, and the JSE All Share Index.

The Merchant West Value Fund underperformed most of these funds over 1 year, 3 years, and 5 years. It was the worst-performing over most periods.

The table below provides an overview of Piet Viljoen’s Merchant West Investments Value Fund’s performance, in rand, against popular passive investment options.