Martin Hesse
WORDS ON WEALTH
As I have written before, there is a vast divide between economies and financial markets, and nowhere was this more apparent than in South Africa in 2021. The country’s gross domestic product for the year, though not yet official, was around 5% (a rebound from the disastrous, Covid-induced -7% of 2020), yet the FTSE/JSE All-Share Index (Alsi) hit new highs at 73 700 points, up 24% for the year. This is the JSE’s best performance over a calendar year since 2009, when it rebounded by 29% after the financial crisis of 2008.
All this while South Africa broke records for unemployment, household and government debt rocketed, and the man in the street generally became worse off, with very few companies being able to afford annual increases or bonuses for their staff.
Getting back to the markets, it’s important to note that performance in 2021 was not a rebound from losses incurred in the previous year. By the end of 2020, the JSE had already recouped its losses of March 2020, when the pandemic hit and the markets plummeted by about 30%. So the 2021 returns were pure market exuberance, driven largely by stimulus injections from central banks and the ongoing commodities boom (which admittedly lost steam in the second half of 2021).
The total return (TR) version of the Alsi (which reflects returns after share dividends have been reinvested) was up 29.2%. This is an extra five percentage points higher than the standard index, which only reflects share prices, and it is the TR index which is a more appropriate figure when measuring and comparing investment returns across unit trust funds.
All sectors on the JSE did well (all were above 25%) with the best performing sectors being resources (up 32.4%), financials (up 29.6%) and the small- to mid-cap stocks (up 28.9%, according to ProfileData).
While gold disappointed, the platinum group metal (PGM) mining companies reaped the rewards of high PGM prices – the prices had risen steeply in the second half of 2020, and continued on a steep upward trajectory until May 2021, whereupon they subsided to levels seen at the beginning of the year.
Globally, stock markets performed equally well: the MSCI World Index was up 30.3% in rands (22.4% in US dollars)
Listed property on the JSE was up 36.9%, though still negative over three years.
Local bonds returned 8.4% in 2021, according to the Bond Index, and cash returned 3.5%, well below inflation, which was 5.9% for the year to the end of December. That's just inside the SA Reserve Bank's 3-6% target range, so it's likely, with inflation looking to continue to rise, that interest rates will have increased by a full percentage point by the end of this year.
Finally, the rand started 2021 at R14.59 to the dollar, strengthening to R13.35 in June. However, after that it weakened considerably, pushed lower no doubt by the disastrous July riots, ending the year at R15.92 to the dollar. This means that, in rand terms, offshore investments (which are typically in global stocks such as the big tech stocks) not only benefited from the rising stock prices but from the weaker rand.
UNIT TRUST PERFORMANCE
Unit trust performance was mixed, from the spectacular to the merely decent – very few funds produced negative returns in 2021.
In the South African general equity category net annual returns across 164 funds ranged between 8.97% and 60.20%, with an arithmetic mean of 27.38%, about two percentage points below the Alsi TR.
In the popular balanced fund (multi-asset high-equity) category, apart from two funds delivering slightly negative returns of -1.98% and -2.74% respectively, most funds achieved returns in the upper teens and low 20s, the highest return being 40.66% and the arithmetic mean being 20.48%. There were 191 funds in the category at the end of last year.
Returns from the 90 rand-denominated global equity funds ranged from -15.44% to 40.07% for the year, the arithmetic mean being 22.17%. Returns weakened on the rand’s strength in the first half of 2021, but were boosted by a weaker rand in the 3rd and 4th quarters.
Unit trust sector performance over one year to end 2021
Unit trust sector performance over three years to end 2021
PERSONAL FINANCE