THE BEST AND WORST UNIT TRUST OF 2016

Last year will not be remembered as a great one for investors. It was very difficult to find real growth in markets that were highly volatile and very uncertain.

Figures from Morningstar show that of the more than 1 000 unit trusts in South Africa, only 26.6% produced inflation-beating returns of 6.5% or more. At the other end of the scale, 34.2% showed negative returns.

The median return across all local unit trusts was just 2.33%.

Yet a handful of fund managers still managed to do extremely well. Remarkably, the two best-performing local funds grew by over 60%.

The Coronation Resources Fund and the Investec Value Fund were the biggest beneficiaries of the massive resurgence in mining counters during the year. After a sustained period of severe under-performance, these funds finally rewarded those investors who had been patient enough to stick with them, or were prescient enough to see the opportunity that had been created by the selloff in resource companies over the last couple of years.

The table below shows the top 20 funds for the 12 months to the end of December 2016. It is a list dominated by resource funds, and funds with a value approach:

Unit trust performance to 31 December 2016
Fund 1 year return
Coronation Resources Fund P 64.13%
Investec Value Fund R 62.37%
Argon BCI Worldwide Flexible Fund A 46.71%
Old Mutual Mining & Resources Fund R 44.43%
RECM Equity Fund B 43.04%
Investec Commodity Fund R 41.91%
Nedgroup Investments Mining & Resources Fund R 38.40%
Momentum Resources Fund A 34.62%
SIM Resources Fund 32.42%
Flagship IP Flexible Value Fund A1 30.92%
Stanlib Resources Fund R 26.04%
PSG Equity Fund A 25.12%
RECM Global Flexible Fund A 24.34%
Investment Solutions Equity FoF A 24.04%
Satrix Dividend Plus Index Fund A1 23.53%
Sygnia Dividend Index Fund A 22.56%
RECM Balanced Fund A 22.25%
Momentum MoM Specialist Equity Fund A 21.64%
Pepetua MET Equity Fund A 21.02%
MET Target Return Fund A 19.54%

Source: Morningstar

While there is a clear concentration of resource funds, it is still interesting to note the variance in performance between them. The Coronation Resources Fund outperformed the Stanlib Resources Fund by more than 100%. So while they all benefited from the strong growth in mining stocks over the year, they still employed very different strategies that produced quite different results.

Given that the rand strengthened over the year it is unusual to see a fund that can invest offshore near the top of the list. The Argon BCI Worldwide Flexible Fund is however invested predominantly in local equities, with very limited international exposure.

Of the value managers on the list, the deep value approach of the Investec Value Fund and RECM Equity Fund delivered the most spectacular returns, while the likes of PSG and Perpetua were more measured. It’s also worth noting that funds tracking the FTSE/JSE Dividend Plus Index also turned their performance around after a couple of poor years.

The last noteworthy fund on the list is the one in 20thplace – the MET Target Return Fund. This is the former Third Circle MET Target Return Fund that infamously lost 66% in just two days in December 2015.

The fund is now managed by Momentum Outcome-based Solutions and has managed to reverse some of its losses. However, it is still close to 60% off where it was.

At the other end of the performance statistics, the table below shows the ten worst-performing unit trusts over the course of last year:

 

Unit trust performance to 31 December 2016
Fund 1 year return
Aluwani Africa Equity Fund A -30.69%
Prescient Africa Equity Feeder Fund A1 -28.21%
ABSA Sterling Income Fund A -26.05%
Warwick MET International FoF A -22.52%
ABSA Africa Equity Feeder Fund A -22.32%
Sygnia Africa Equity Fund A -21.02%
Prescient China Balanced Feeder Fund A3 -20.54%
Stanlib Global Emerging Markets Property Feeder Fund B1 -19.66%
Prescient Africa Sustainable Equity Fund A1 -19.64%
Prescient Global Positive Return Feeder Fund A1 -19.63%

Source: Morningstar 

 

The most obvious theme here is the poor performance of funds investing in African equities. Half of the funds on the list have an African focus.

Amongst the others, it’s clear that the ABSA Sterling Income Fund fell victim to the weakening in the pound that followed the Brexit vote. From the end of May to the end of the year, sterling fell over 26% against the rand.

It is also interesting that the Prescient China Balanced Feeder Fund appears on this list. This was the top-performing South African-domiciled unit trust for both 2014 and 2015, but its fortunes reversed sharply last year. Nevertheless, it does still boast an annualised three-year return of over 20%, putting it in the top five local funds over that period.

Important note: Past performance of unit trusts, particularly over the short term, is not an indicator of future returns. This analysis of one-year performance should therefore not be taken on its own as a guide for making investments.

 

Value and commodity funds dominate the performance table. 

Patrick Cairns 

 

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