By Alec Hogg
A few years back, I was publicly attacked by a marketing executive who worked for an asset management company. It was during an otherwise forgettable presentation in Pretoria when I was giving feedback after returning from my annual trip to Omaha to listen to the world’s greatest investor, Warren Buffett.
That was one of the years when Buffett lined up the fund management industry, repeatedly telling the 40 000 Berkshire AGM pilgrims to invest in index trackers rather than active managers. I shared his views and got a verbal “snotklap” for my trouble.
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Even so, it is hard to fault his argument: Arithmetic says before costs, it is only possible for half of all money managers to beat the market. Overlay their expenses and in any one year no more than a third can possibly do better than their benchmark. Different managers do the outperforming, so unless you happen to hit it very lucky, common sense says most investors are better off sticking with the indexes.
Despite reams of academic studies supporting Buffett’s irrefutable logic, the message took a long time to break through the noise of the South African industry’s marketing machine. My antagonist in Pretoria had clearly drunk a lot of her own Kool-Aid.
She was furious – accusing me of spreading lies by making claims that did not hold in a South African context. Local fund managers always outperformed the stock market, she said. And by claiming otherwise I was wasting the hard earned savings of those in the audience.
That was one of those events I’d loved to have recorded. But in its absence, at least there’s the knowledge of knowing the marketing manager has surely changed her tune. Or at the very least, is finding her story harder to sell. Because the reality of the investment world has arrived on the southern tip of Africa.
Last year the JSE’s All Share Index ended very close to where it started 2016. But that doesn’t mean it was boring. Anything but. The JSE was like the proverbial duck paddling furiously against a strong tide – while serene on the surface, turbulence ruled beneath it.
It was the kind of environment where stock picking became more important than ever, a market which active managers tell us they love. Except that few showed their mettle. Once again, only one in five of those who invest in South African shares managed to beat the index.
Tracker funds and resource-linked Exchange Traded Funds have mushroomed in a country that was late to catch the global wave. But now investors have caught onto the benefit of ultra low costs, they’re hooked. The past 12 months has simply added substance to a fact that investors elsewhere accept as the reality.
