BUSINESS NEWS - For the 12 months to the end of June this year the FTSE/JSE All Share Index (Alsi) was up 15%. The average return from unit trusts in the South Africa equity general category for the same period was, however, just 7.9%.
In other words, the average fund manager delivered barely more than half of the return of the market.
Figures from Morningstar show that only 17 funds in the category beat the broad market benchmark over this period. Nine of those are passive funds. One hundred and forty eight, underperformed.
Even accepting that equity funds should not be judged on one-year numbers, these are pretty eye-catching statistics. This is particularly the case in the current low return environment.
South African investors have had to stomach relatively poor returns for the better part of four years. Yet, in a period when the market actually produced decent performance, most of them still didn’t see it because their fund managers didn’t capture it.
The Naspers argument
It might be easy to say that this is because of the Naspers effect. The tech giant, which now makes up more than 20% of the Alsi, gained close to 37% in this 12-month period. That is a substantial part of the market return.
Given that any fund manager employing proper risk management would not have 20% of their portfolio in any single stock, every active manager in the country is underweight Naspers. None of them would therefore have been able to get the full benefit of its rally.
That’s the simple explanation. It also happens to be incomplete.
If your fund manager tells you that they underperformed because of Naspers, they are not being completely honest.