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Unit trust funds out in the cold as JSE rallies
Last year's run by commodity stocks caught fund managers short, writes LUCIENNE FILD
ASTELLAR run by commodity stocks caught SA's fund managers by surprise in 1999, with the result that only a handful of local unit trusts outperformed the JSE's all- share index over the year.
Only 10 out of 260 local unit trusts managed to outperform the all-share index last year, and seven of these were mining and resources funds. Tracker, or index-linked, funds were also among the best performers.
The all-share index was up by a smashing 61% for the year - the best since 1997 when the market delivered 94% - on the back of a run in commodity stocks.
While this hurled mining and resources funds into top positions for the year, most general equity funds were left behind as their fund managers were caught unawares, resulting in the majority of broad based general equity trusts not being invested in commodities when these stocks ran early last year.
The mining and resources sector returned an average 93.4% for the year, statistics provided by Standard & Poor's Micropal show.
In comparison, the Domestic Equity - General sector returned 35.3% for the year.
The top performing unit trust for 1999 across all sectors was the NIB Mining and Resource fund with a return of 117.6%. Peter Major, fund manager, says he was ready to throw in the towel shortly before commodities took off early last year.
"But I thought if I'm going to go to hell I might as well do so holding great shares. I loaded up on Anglo-related shares."
At the beginning of last year, he was fully invested in quality mining shares with PEs of only six or seven. Before he knew it commodities were flying, as was the fund.
He has shifted towards second-liners now that the blue chips look fully priced.
The only Domestic Equity - General fund to make it into the top 10 was the Allan Gray Equity fund.
The worst performing sector for the year was smaller companies, and the worst individual performer the Absa Specialist Growth fund.
Kevin Clarke, product manager at Absa Fund Managers, blames the fund's performance mainly on the poor showing of small cap stocks. The fund was over exposed to some IT stocks which did not meet expectations.
Over all sectors in a threeyear period, the top performer was the Standard Bank International Equity fund, managed by Fidelity International, with a return of 121.4% over three years.
The worst performer, the Standard Bank Gold Fund, lost 8.42%.
While most fund managers did not get it right last year, neither did investors.
Jeremy Gardiner, head of unit trusts at Investec Guinness Flight, describes 1999 as a "weird" year for investors.
In the first quarter investors piled into money market funds, fearing a spillover from a volatile 1998. Instead the market added about 18% in the quarter.
In the second, investors chased after worldwide funds, fearing rand weakness which never materialised.
In the third quarter, investors finally caught on to the run in commodities, but too late as the big run had already happened.
Y2K fears saw investors move into cash in the fourth quarter, but the market rose by a steep 13% in December.
Gardiner says investors are still making the mistake of chasing past performance.
So think twice before chasing last year's top mining and resources stocks. While they still have potential, the easy money has been made.
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