THE REAL MARKET
April 2008
We are now well into the 2008 investment year, and are still seeing much turmoil emanating from the Sub-Prime crisis which hit the USA during 2007. Will this ease over time? If history repeats itself year after year, we can obviously make the comment that YES, the markets will improve, but we do believe that this debt crisis runs a lot deeper than what some pundits may believe. Which brings us to another issue which is very pertinent, and that is: WHAT IS “THE REAL MARKET”?
To try and answer this question, consider the following:
Many of our clients have a passing interest in what happens on the stock market and will generally watch the news on most evenings.
In the main, what they will see would be a report on the JSE Overall index quoted, and as long as it’s in the region of 30,000, they will feel quite comfortable, as it has kind of been in this region for quite some time (if you are an avid watcher and cast your mind back, it was at 25,000 in January 2007 and peaked at 31,500 in mid October 2007). When it is “up”, it is normally at this point that we start receiving phones calls asking why our funds have not kept pace.
However, this information is completely misleading, as the Overall Index is dominated by basically 3 shares which are completely distorting this index, viz. Impala Platinum, Sasol and Anglo American, all of which have a heavy weighting in the index. At the other end of the scale, the vast majority of the rest of the shares on the market have been falling, some of them substantially.
The table below reflects a number of large household names and what their shares have done in the period 1 November 2007 to 1 March 2008 (3 months).
Share |
Return |
Imperial |
-40.00 % |
Netcare |
-31.00 % |
Tiger Brands |
-27.00 % |
Nedbank |
-24.00 % |
Foschini |
-24.00 % |
Old Mutual |
-24.00 % |
Telkom |
-24.00 % |
Standard Bank |
-21.00 % |
Liberty Life |
-20.00 % |
Afrox |
-19.00 % |
Pick & Pay |
-18.00 % |
Hyprop |
-9.00 % |
BRANTAM CHAMPAGNE FUND |
-7.75 % |
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Impala Platinum |
+58.00 % |
Sasol |
+23.00 % |
Anglo American |
+21.00 % |
You will note that I have slotted in our own equity portfolio, being CHAMPAGNE, and it is heartening to see that, although also negative, not anywhere near the rest. This is largely due to damage control put in place late last year.
So I believe that we can argue that the “real market” has taken a pounding over the last 3 months, yet if you were to only look at the overall index, you’d think things were pretty rosy.
This is known as a two tier market in the industry, where we see one sector (in this instance, the Resources sector) distorting the rest of the market, which tends to hide the real picture.
So what is the “real picture” you ask - The real picture is an economy in trouble and when resources come to the end of their run (and it is our contention that we are seeing a “resource bubble” of similar proportions to the IT bubble in 2000, so a potential imminent collapse), there is likely to be large drop in the index which will no doubt trigger another bout of panic.
This, again in our humble opinion, should present some really good buying opportunities, as the broader market has already had it’s sell off and any big drops from here will be more sentiment driven rather than a case of poor fundamentals. With just on R 900 million in fixed interest instruments, we will be well positioned to take advantage of these opportunities, so for now, we just have to be patient, bide or time as the wheel turns. For those who do not have to much of this “time” available, you need to be positioned in a much lower volatility portfolio than the JSE!
Lastly, I have had quite a few calls already this year (2008) where clients have reviewed their portfolios over the past 4 – 6 months and come to the conclusion that Money market would be a better option. Now we can’t dispute the fact that Money Market would have given you somewhere around 3.5%-4% where a fund like Classic Port only delivered 2.4% as at the end of December 2007. However, now is the time where YOU have to decide whether you are an “INVESTOR” or a “SAVER”, and there is a very distinct difference:
- INVESTORS understand that markets are fickle and are thus quite happy to ride through the poor times, as over the longer term they see the benefits. My example on Classic Port is typical of this – yes, the past 4-6 months has not been great, but anyone who has been in for 3-5 years will have seen average returns of 14%-16% VS Money Market over the same period delivering 6% average at best.
- SAVERS on the other hand, do not want to entertain any volatility, and will thus opt for that 6% average as it allows them to sleep at night.
Brantam are an investment house, so if you invest with us, by definition you take the first road and go for the ride. We, in turn, have to earn our keep, so work quite hard at squeezing out returns. It does become quite tough in times like we are faced with at present, as it is very difficult to find true value out there.
As a result, we are making that Money Market call on your behalf and actually hold large chunks of cash in each portfolio while we search for value. This has proven to be the correct route, and we are quite comfortable with the fact that, as at 1st April 2008, our CLASSIC PORT portfolio, being the lowest volatility fund, is comfortably running ahead of Money Market funds, which substantiates the claims.
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