A stronger JSE and a soggy has kept pushing the value of unit trusts higher this year. David O’Leary, Director of Fund Research at Morningstar joined Alec Hogg on CNBC Power Lunch today to discuss the best and worst performing unit trusts. In the performance of unit trusts for 2014, experienced managers have been shining through during a difficult period for stock and sector selection. – LF
GUGULETHU MFUPHI:  David, maybe that’s a good place for us to start. Which particular categories were the best performers in the last six months?
DAVID O’LEARY: Generally, it was a really strong quarter – second quarter – building off of a strong performance on the first quarter. The second quarter was even better, generally. What we saw was global markets did very well. Emerging markets have outperformed developed markets, so that’s why you see really strong performance across a lot of the South African unit trust categories: in particular, those categories that had the most exposure to South African equities, for example your domestic equity categories. Those multi asset categories that have the highest equity exposure, tended to gravitate toward the top of the performance charts.
ALEC HOGG: In the last three months, as you say, it’s been very much an offshore-driven performance table. Just looking at the top ten, pretty much all of them have a high percentage of their exposure offshore.
DAVID O’LEARY: Yes, in the second quarter in particular, the South African equity market outperformed most of the developed markets, so you’re looking at a seven or eight percent return from the JSE in the second quarter, off of a four or five percent return in the first. The S&P500 did about five percent and the Nikkei did about two-and-a-half percent. I think Europe was at three or four percent, for the most part, so it did pay off to be in South African equities this quarter as opposed to globally. Generally, that trend of offshore investments has paid off (1) from outstanding developed market returns last year and (2) the depreciation of the Rand, which seems to have flattened out a little bit, but it’s boosting returns to those South African investors who are buying investments offshore.
ALEC HOGG: David, the more interesting thing I think, for the year-to-date 2014, if you take the top four funds, they’re quite diverse. Coronation Financials Financial Fund – that’s number one in the country for the six months so far. Then you get the Old Mutual Gold Fund obviously, exposed to bullion. Then the Allan Gray Equity Fund, and then Investec Value Fund, so some good names there. We know a lot about three of four funds anyway – well managed. It does appear as though stock selection, I guess, is also coming into a premium now.
DAVID O’LEARY: Right. I think that’s what happens after you have a really strong bull market, where everything’s rising all at once, and you surely can’t go wrong. Then, when things start to moderate, you start to separate the wheat from the chaff and you have some areas that are performing better than others are. I think there are two consistent themes among those four…maybe not all four of them, but many of those four funds that you mentioned.  (1) is sort of a value bias. Investec Value obviously has one. Allan Grey are value sensitive managers, and Coronation to some degree, as well is quite valuation conscious. (2) You’re seeing the financials in gold or resources/exposures, which really buoyed any funds that had meaningful exposure to those sectors, which Investec Value and Old Mutual Gold certainly did.
ALEC HOGG: That was David O’Leary, who’s Director of Fund Research at Morningstar South Africa, giving us the rundown on the top performers. It is interesting to see some of those funds that have been around for a long time, and being managed by good, experienced fund managers, continuing to deliver the goods.Â
