WORDS ON WEALTH:
Financial markets fared surprisingly well overall last year, considering the devastating impact of the coronavirus on the global economy, reinforcing the widely held belief that financial markets no longer reflect the “real” economy.
The MSCI World Index, which measures the performance of the world’s top companies, was up almost 20% in rand terms for the year. Some of the world’s wealthiest men have vastly increased their fortunes over what for many of us has been a most unhappy period.
However, if you delve into the different market sectors, the picture becomes less rosy, for, while some sectors boomed during the pandemic, others, such as the airline and hospitality industries, suffered unprecedented losses, and will take years to recover.
The JSE was up about 4% for the 2020 calendar year, according to the FTSE/JSE All Share Index (Alsi), despite plunging 30% in March. Some sectors reached the end of the year in good shape: resources shares – particularly miners of gold and the platinum group metals – did particularly well (up 21%, on average), industrials were up 12%, and large-cap shares were up 10%.
However, the financial sector, which includes the banks and insurance companies, had a miserable year (down almost 20%), and the shares of mid-sized and smaller companies on the JSE, a reliable indicator of the state of the “real” economy, were down over 14%, on average.
The South African listed property sector – property companies listed on the JSE – has had a torrid time over the past few years, and the pandemic provided a body blow: it was down 35% for the year. This figure would have been worse if listed property had not bounced back fairly strongly in the last quarter.
The rand, which started the year at about R14 to the dollar, dropped 25% to R19 to the dollar at the height of the crisis, but then recovered to end the year at roughly the same value as it had started it.
Inflation was the lowest it has been since 2004: it was 3.1% for 2020.
Unit trust funds that did well last year were those that were able to capitalise on the growth in sectors that performed well, such as the mining shares, while avoiding the sectors that did badly.
On the global stage, the big US tech stocks “shot the lights out”: the Nasdaq index, which contains a preponderance of tech stocks, was up 45% for the year in dollars. Funds focused on global markets that held these big tech stocks in their portfolios did extremely well, although the performance was tempered by a strengthening rand in the second half of the year.
UNIT TRUST PERFORMANCE
Let’s take a closer look at some of the popular unit trust sub-categories:
- South African general equity funds. The FTSE/JSE All Share Total Return Index, which, unlike the Alsi, factors in reinvested dividend distributions, was up 7% for 2020, with a worthwhile 3% coming from dividends. Against this, the 171 funds in this category averaged only 1.35% for the year: the top fund returned a handsome 19.81%, while the bottom fund recorded a 24.06% loss.
- Global general equity funds. These are funds that invest in equity markets outside South Africa, and are therefore subject to fluctuations in the value of the rand against the other major currencies. In rand terms, the best-performing fund almost doubled its investors’ money (98.19%), while the worst-performing managed only 2.05%. The average of the 77 funds in the sub-category was 21.67%.
- South African multi-asset high-equity funds. The 186 funds in this category averaged 5.24%. Returns of individual funds ranged from -13.4% to 28.24%.
- South African multi-asset income funds. The 86 multi-asset funds that specialise in producing income (as against capital growth) averaged 5.69% for 2020. The highest return was 11.65%, the lowest -0.30%.
- South African interest-bearing funds. The returns from interest-bearing funds do not show the variance of those from funds that include equities. In 2020, money market funds delivered an average of 5.81%, short-term interest-bearing funds averaged 6.19%, and variable-term interest-bearing funds averaged 7.12%.
PERSONAL FINANCE