Rob Rusconi - wise words

Rob Rusconi's discussion paper entitled "Institutional Investments - Who's Money is it Anyway?" reveals some fascinating insights into active fund management vs index tracking.

This discussion is of particular interest to pension fund members as well as to individual investors. It is a well-known fact that only a small fraction of investments in South Africa are allocated to index-linked funds such as Satrix or Dbx-trackers [the new Deutsche Bank ETFs].

Rusconi correctly asserts that on average, active managers [about 75%] cannot outperform the market after charges, yet every manager asserts its astounding track record.

The big spend on marketing and advertising by fund management companies can certainly bend perceptions but what is the real truth of this in the South African context?

Particularly in this country one must look at how an index is structured and assess its overall risk and volatility. The JSE All Share Index comprises less than 170 shares ranked according to size or market capitalisation. As South Africa is primarily a resource-based economy, the weighting of the All Share Index and particularly the Top 40 Index [which Satrix 40 tracks] is very high towards the resources sector. This sector has had spectacular returns over the past six years. Buying Satrix 40 at this time means that you run the risk of buying at a high price which is contrary to investor logic.

The Dbx-trackers tell a different story: They are also Exchange Traded Funds [ETFs] but give you access to offshore indexes by investing in SA Rands. There is a choice of a FTSE 100 Index ETF, MSCI USA Index ETF, MSCI Japan ETF, DJ Euro Stoxx Index ETF and an MSCI World Index ETF. Although many investors have shied away from offshore exposure over the past six years due to poor performance there is renewed interest in investing offshore due to the threat of the Rand depreciating as well as political uncertainty.

Silke Financial Services has the ability to identify expert fund managers who, over time and through active management, can outperform the market even after fees. We do believe that some ETF exposure within a portfolio is a good idea to reduce risk, when appropriate.

Set out below is the net performance of five equity funds versus the JSE All Share Index, showing outperformance.

On the offshore side we maintain our view that a good active manager can handsomely outperform the World Index over time. For example, the Orbis Global Equity Fund proves this view:

Source: Fund Fact Sheet: Orbis Global Equity Fund 29 February 2008

Silke Financial Services has the skill and expertise to identify which active or passive funds are appropriate to your needs, both in the offshore and in the South African markets.

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If you have any queries regarding the above commentary please contact us on 021 683 3380 or info@silke.co.za.