*This content is brought to you by Finmar – an authorised financial services provider
By Manie Marais*
I attended school in the Great Karoo, where English was somewhat of a foreign language. We had to learn grammar from a book named English Made Easy. The knowledge of how to apply “is” and “are” has stayed with me to this day. It made the difficult world of English easier to navigate.
So, what is the equivalent of Investment Made Easy for the average South African investor who must navigate the difficult world of investment where the choice of funds runs into the thousands of possibilities, currencies, markets, and sectors?
How must an investor choose where to invest his funds for peace of mind and be reasonably sure of top performance?
Piet Viljoen is one of the most well-known investment commentators in South Africa. Do you invest with him, do you invest with Investec, Coronation or Magnus Heystek or one of the hundreds of funds out there?
At Finmar, we recognised that we had very little guidance to give clients on where to invest and therefore stayed with safe options like funds of Allan Gray, Ninety-One, Coronation and the like. We also tried boutique fund managers, which were also not very satisfactory. We then decided (after much research) to form our own boutique fund management company investing exclusively in ETFs.
One of the problems is that the latest fund winner gets a lot of publicity, which is a way to attract more funds. Published fund performance does not consider financial advisor fees, only those of the asset managers.
Recently, Magnus Heystek tweeted, “You don’t need to go offshore to get great returns. Brenthurst has been using the MI-Plan Global Macro fund for more than 10 years (it’s our largest holding), and the annual return over this period is more than 15%.” (this is the return in ZAR, which is excellent).
Piet Viljoen has chosen Simon Peche and his Ranmore Management Fund (top 1% in the world Biznews 24 January 2024) to manage his Global Value fund after years of underperformance.
Performance of active asset managers
So, let us look at the performance of active asset managers in general.
Few people realise that the asset management industry was disrupted with the advent of ETF’s. It is well-known that very few mutual funds (unit trusts) can outperform their benchmarks.
According to the latest SPIVA report, over the long run, about 90% of active large-cap asset management professionals cannot outperform their benchmark in the United States.
WHAT IS SPIVA? S&P Indices versus Active (SPIVA) scorecards are semi-annual reports published by S&P Dow Jones Indices that compare the performance of active equity and fixed-income mutual funds against their benchmarks over different time horizons.
Unlike surveyors’ benchmarks, investing benchmarks are fluid and variable, and fund managers can change which benchmark they measure themselves against. Data shows that active asset managers underperform in the long run when measuring performance against large-cap indices rather than other underperforming fund managers. The table below shows the percentage of underperformance over different periods:
This means less than 8% of fund managers can do better than the simple S&P 500 ETF over a longer term.
Let us see how Ranmore and Magnus Heystek’s choice Mi-Plan IP Global Macro Fund stack up against a simple ETF portfolio (USD returns); we add flagship Ninety One Global Franchise Fund (The Investec Global Leaders fund has had a dismal record over the last 3 years and not enough data is available to be included):
Head-to-head performance in (USD)
What does this look like in actual money values?
See below the end values after 10 years of a nominal investment of $100,000:
Although these funds have done well historically, how do you pick the best-performing funds today? Anyone can pick a winner in hindsight.
I find it fascinating that a team of the brightest minds in finance cannot beat the simple S&P 500!
This is where Investment Made Easy comes in. ANY combination of the above ETFs, Nasdaq 100, S&P 500, MSCI World and Dow Jones beat the best fund managers over 10 years. These 4 ETFs follow the most well-known indices in the world.
Principles of Investment Made Easy
The underlying principles of our approach are the following:
- Invest offshore with many available funds, as the South African equity market represents less than 1% of the global equity markets.
- Use ETFs as far as possible rather than individual shares, as fund managers cannot beat their benchmarks or the large indices in the long run.
- The ETF approach offers excellent diversification. Since 1926, only 4% of all shares were responsible for 100% growth and only 86 shares for 50% of growth. By buying ETFs, exposure to the winners is ensured.
- Market timing is extremely difficult, and invests in specific sectors (wind energy, gold etc.) not a guarantee for outperformance over longer periods.
- We do not have a preference to Value or Growth investing but will tilt portfolios occasionally. The S&P 500, for example, has several ETF variants available, such as value, growth, equal weight, or even an ETF for every sector of the 11 sectors of the S&P 500.
- We use offshore platforms/brokers as they have distinct cost, capital gains, and tax advantages over similar ETFs available on the JSE.
- We use a unique set of ETFs based on the four indices above S&P 500, Nasdaq, MSCI World, and Dow Jones. Regarding managing the underlying investment, we follow a smart beta approach and human intervention to adjust weights occasionally.
It is time for investors to recognise the might of ETF investing.
Manie Marais – email: [email protected]
Francois Marais – email: [email protected]
