WORDS ON WEALTH
Martin Hesse
Talk about weird. World equity markets, and especially the South African equity market, enjoyed a surprisingly good quarter ending 2022, after dismal performance in the preceding three quarters of the year. And although world markets (as measured by the MSCI World Index) didn’t claw back all losses for the year, the JSE surprisingly did, although one may attribute that partly to the rand, which lost 7% of its value against the dollar in 2022.
Weird, especially when you consider the perilous state of the South African economy and the devastating impact of loadshedding, leading to a widespread feeling of doom and gloom that I have not experienced since the birth of our democratic era almost three decades ago.
But as I have said before, economies and financial markets (especially equity markets) are rarely in sync. Markets tend to be forward-looking, pricing in current and expected positives and negatives.
The upswing in the fourth quarter may largely be attributed to the widely-held assumption in overseas markets that inflation, which was becoming scary, has peaked, particularly in the United States, and central banks will stop hiking interest rates. Whether the assumption turns out to be true or not, we’ll just have to see.
But even with the upswing at the end of the year, 2022 was not kind to investors. In their investment strategy report for the first quarter of 2023, Nolan Wapenaar and Peter Armitage, chief investment officers at Anchor Capital, write: “Last year hurt, with global equity and bonds returning negative outcomes, while domestic equity and bonds returned a disappointingly small positive outcome. Platitudes like the worst bond market since records began, inflation spiking to levels last seen 40 years ago, rotation towards value and equity market corrections do not capture the reality that most investors lost money in 2022. Whether this is part of your long-term nest egg, a child’s education fund, or an endowment does not matter. Last year was one where investment plans did not work out.”
Let’s look at some numbers.
Market indicators
The FTSE/JSE All Share Index started 2022 at about 73 700 points. By the end of September it had fallen to 63 300 points (-14%). From there it rose by about 15%, ending the year at around 73 000, only just below where it had started. (It has since gone on to breach the 80 000 mark, a new record.)
The total-return version of the index (which shows performance when dividends are reinvested) jumped 15.16% for the quarter, bringing the annual total return to 3.58%.
Compare the JSE to the MSCI World Index. In dollars, the world index dropped 27% in the first three quarters of the year. It bottomed in October and shot back up again, returning 10% for the last quarter, but still down almost 20% for the year. In rand terms, it returned 2.83% for the quarter, but was down 14.10% for the year, according to data provided by ProfileData.
In South Africa, all indices were well up for the quarter. The industrial index was up 15.76% (but down 3.71% for the year); the financials index was up 11.94% (and up 8.61% for the year); the resources index was up 17.56% (and up 6.21% for the year); and SA listed property was up 19.31% (but up just 0.49% for the year).
Bonds, which like shares had a torrid first three-quarters, were up 5.7% for the fourth quarter, bringing bond returns for the year to a meagre 4.3%. Not great when you consider inflation for 2022 was 7.2%, according to the latest figures from StatsSA.
Unit trust categories
Looking at unit trust performance in the more popular equity and multi-asset categories (all data provided by ProfileData):
South African general equity: the 177 funds in this category delivered an arithmetical average of 10.52% for the fourth quarter and 3.24% for the year. The best-performing fund delivered 16.14% for the year, while the worst-performing fund delivered -11.68%.
South African multi-asset high equity: the 187 funds in this category delivered an arithmetical average of 6.9% for the fourth quarter and -0.13% for the year. The best-performing fund delivered 11.27% for the year, while the worst-performing fund delivered -25.29%.
Worldwide multi-asset flexible: this category puts no restraints on where or in which asset class a fund manager can invest. It is, therefore, the best indication of a manager’s investment view, and, as to be expected, the divergence is wide. The 107 funds in this category delivered an arithmetical average of 4.41% for the fourth quarter and -8.29% for the year. The best-performing fund delivered a staggering 53.86% for its investors in 2022, while the worst-performing fund delivered an equally staggering -43.35%.
Global general equity: the 103 funds in this category delivered an arithmetical average of 3.53% for the fourth quarter and -14.18% for the year. The best-performing fund delivered 14.16% for the year, while the worst-performing fund delivered -43.94%.
The variance in the interest-bearing categories is small, so I’ll give only the averages:
Money market: 1.71% for the fourth quarter 2022 and 5.03% for the year.
South African interest-bearing short-term: 2.11% for the quarter and 6% for the year.
South African interest-bearing variable-term: 5% for the quarter and 4.06% for the year.