Investors withdrew R13.5bn from equity unit trusts in 2019, against the advice of many experts who believe in maintaining a high equity exposure through thick and thin.
And yet, given 2020’s market rout — the JSE all share index has lost about 24% year to date — maybe they were, in fact, right.
"SA investors are more risk averse than their global peers," says Sunette Mulder, senior policy adviser at the Association for Savings & Investment SA. "Internationally, equity funds make up 44% of mutual fund assets; in SA, it is just 18%."
But during the coronavirus crisis most investors will be relieved to have more diversifed portfolios, with almost half of the R2.1-trillion in multi-asset funds diversified between equities, bonds, cash and property; a further 30% in interest-bearing funds, including money market funds; and a shrinking 3% in real estate funds.
It is hard to exaggerate the devastation to equity markets over the past six months.
According to FundsData, the average general equity fund has lost 22% in value.
Only one fund — the tiny R57m IFM Technical Fund — gave a positive return, with a rise of 6.8% driven by a substantial 37% holding in foreign shares.
But that is above the legal limit, so it will need to repatriate assets to get back to the maximum 30% cap allowed.
Other good performers have been 36One Equity, which lost just 3.7%, Methodical Equity, down 6.4%, and Counterpoint SCI Value, which shed 6.8%.
Counterpoint now has the benefit of a stronger team since it merged with Piet Viljoen’s RECM.
It has also proved to be a reasonably good time to be in sharia funds, which cannot invest in sectors such as financials: Oasis Crescent, the blue chip in the sector, was down 3.5%.
But with local bonds losing about 8% of their value so far this year, multi-assets were certainly no safe haven either.
In fact, balanced, high-equity funds (which can invest up to 75% in shares) did just as badly as pure equity funds, falling 22.5% over six months.
There were a few more positive performers such as the Gryphon Prudential Fund of Funds (up 8.6%), Rezco Managed Plus (up 5%) and the little-known Olympiad BCI Managed Fund of Funds (up 1.8%).
Says Rezco chief investment officer (CIO) Rob Spanjaard: "We were flagging possible outcomes of the coronavirus to clients back in January. We felt that the risks were asymmetrical, as the potential downside risk was out of proportion to the potential upside in the market, especially as global markets were at record highs."
Rezco switched heavily out of cash and bonds, investing as much as the mandate permitted into US Treasury bills, which usually appreciate in value during a crisis.
The two Rezco balanced funds now have just 13.5% exposure to equities.
"Sometimes we just have to sit on the sidelines to protect client capital," says Spanjaard.
Balanced funds which have stubbornly remained in the market have been caught on the back foot: Bridge Managed Growth and PSG Balanced have lost a quarter of their value over six months. PSG Balanced still has a huge 70% exposure to equities, and 4% to property. Its two largest domestic shares, Discovery and Old Mutual, have lost half of their value.
"Market cycles and movements are outside our control," says PSG Asset Management CEO Anet Ahern, "so we focus on the business moat of a company — factors such as brand strength and barriers to entry, the management team’s track record and the inherent margin of safety in the price."
Unfortunately for PSG, many of the shares at "rock bottom" now appear to have a basement too.
And big household names have hardly covered themselves in glory either.
The Allan Gray SA Equity Fund was among the poorest performers, losing 29%, while the Allan Gray Equity Fund, with access of up to 30% to offshore assets, was down 23%. Says CIO Andrew Lapping: "We hold platinum exchange traded funds in our portfolios to diversify risk, but even these have fallen by more than 20% in rands as precious metals have not been spared."
Lapping believes there is likely to be worldwide inflation and weakness in developed bond markets, as countries struggle to fund their stimulus packages.
"We are carefully buying assets that we think are undervalued," he says. "But we need to be aware that there will be a sharp increase in business failures."
Lapping says the important question to ask is whether these losses are permanent.
For example, "Sasol’s price decline could be permanent if the company can’t navigate the current oil crisis". But, he says, "we still hold the share as we believe there is significant option value if the oil price recovers sooner than expected".
Sasol now represents just 0.5% of the Balanced Fund’s assets, down from 3.2% in January.
Clearly, it will be a long road back to better days.
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