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    Another look at investment returns and economic growth

    Investors and many fund managers tend to focus a lot on economic growth, past and future, but as we have mentioned before, there is a low to negative correlation between economic growth and investment returns.

    The Credit Suisse Global Investment Returns yearbook 2010, opens under the heading, Emerging Markets, with this question, “The opening years of the twenty-first century have been a lost decade for equity investors, with the MSCI world index giving a return close to zero. However, emerging markets have been a bright spot, with an annualized return of 10%. Looking ahead, can we expect this differential to persist?"

    This question was asked a year back. With the on-going focus on economic growth coming from emerging markets, it remains a valid question.

    US fund managers, Brandes, reported on the work done by 3 London Business School professors and Credit Suisse that reveals that there is no evidence of a connection between growth in a country’s GDP and investment results. Credit Suisse looked at 83 countries, segmenting them based on their real GDP growth over the preceding five years. Then within each quintile an equal amount was invested into the equity market of each constituent country.

    The process was repeated each year, and with some countries the study, GDP and return data went back to 1900.

    The chart below reflects some of the countries and their corresponding GDP.

    Returns, dividends and GDP growth, 1900 - 2009

    Source: Credit Suisse

    Annualised equity returns by GDP growth
    Quintiles- all 83 countries, 1900-2009.

    Very surprisingly the countries with the lowest GDP growth had the highest market returns.

    In answering the question, as to what explains the disappointing returns from investing in high growth economies, Credit Suisse came up with these answers.

    • It may have been a matter of luck, with low growth economies having resources, which with hindsight were undervalued, or

    • Investors may have shunned equities in distressed countries, and bid up prices of assets in growing economies to unrealistic levels, or

    • Stock prices reflect projected cash flows and their riskiness. When an economy grows, dividends tend to rise, risk is reduced and so the equity premium shrinks. With a smaller equity risk premium, subsequent equity returns should be expected to be lower.

    In other words, they conclude, “If the market functions effectively, stock returns should decline after economic growth, and should increase after economic decline.” This is exactly what the research finds.

    The research indicates that investors should not spend an inordinate amount on economic data such as GDP when making investment decision.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2011-01-31, 17:38:35, by ian Email , Leave a comment

    Short Term Thinking is the Enemy of Investments

    Investors are best rewarded when they take a long term view. By cutting out the noise surrounding markets and economies, investors are able to focus on those items that matter. More specifically, what the market has done on a day to day basis should not affect how you invest. Researching a company’s fair value is a more productive use of your time than tracking the movement of its share price. Once you have an estimate of fair value, you can then look at its share price and decide whether or not to buy the share, not the other way around (i.e. look at share price and then decide on a fair value).

    The same principle applies at the asset class level. News items coming out on a daily basis are unlikely to change the relative attractiveness of an asset class and on their own should therefore not influence your investment positions that much. Assembling a range of information in the form of a mosaic style picture is a better way to use economic and other information than merely trying to interpret each item in isolation.

    While headlines sell newspapers and advertising online, I feel that financial news reporters also have the responsibility to avoid focusing on the short term when reporting on investments. On Monday morning (25 January), before the markets opened, I saw a headline that said “All Share Index falls the most since January 20”. Now if my calculations are correct the ALSI fell 1.6% on Thursday 20 January, rose 1% on Friday 21 January, and then fell 0.8% on Monday 25 January.

    Essentially the headline was highlighting the fact that out of Friday 21 January and Monday 24 January (two days), the performance of the ALSI was negative on Monday, and worse than the performance on Friday. Is this news? Scanning the headline, without pausing to think what it was saying, could prompt the reader to incorrectly conclude that markets were having a rocky time.

    It would help investors if financial news reporters cut down on the number of ‘news’ reports that they churned out and rather focused on adding value to the end user. News reports should not merely rehash SENS (Stock Exchange NewS) reports, but rather look at the report (and possibly other related reports/news items) and attempt to interpret how that news item will affect the company/industry/economy. Clearly in the age of data overload this is easier said than done.

    We endeavour, in our daily reports, to remain focused on the longer term. We often discuss newsworthy items, but strive to frame them (often with other news items) in terms of how they will affect your investments over a long term horizon. It is only natural that, as humans, we will sometimes be overly influenced by short term factors, but we attempt to ensure that this is the exception rather than the norm.

    If you want updates on articles that we believe are worthy of being called news, click through to our Facebook page, and click ‘Like’ at the top of the page.

    Take care,

    Mike Browne
    021 9144 966

    Permalink2011-01-27, 17:21:13, by Mike Email , Leave a comment

    Another look at offshore versus local

    Asset Class returns per calendar year

    Source: Investec

    A graphical format of various asset class returns such as this produced by Investec, provides a very clear picture of the range and variance of returns over any 12 month period.

    At the same time, by colour coding the best and worst asset class in each particular year, we do see that returns occasionally bunch together, so that in 2002 to 2007, listed property was the star performer, while for the years 2003 to 2010, except for 2008, offshore cash was the worst performer.

    What is not so obvious from this table is the fact that offshore equities produced a far superior return compared to local equities in the period 1991 to 2001, despite only being the top performer in 2 years, compared to 4 years for the local equities.

    From the beginning of 1991 to end of 2001 offshore versus local would have been as follows:

    • investment in foreign equities - a cumulative 1172%
    • Local equities – a cumulative 416%.

    As we all know this reversed completely over the following 9 years as global equities declined from their expensive levels to more attractive prices, while at the same time South African investors experienced the impact of a firming rand as it reversed from extremely oversold levels to far more expensive levels.

    From the beginning of 2002 to the end of 2010 offshore versus local would have been as follows:

    • investment in foreign equities - a cumulative loss of 15%
    • local equities – a cumulative gain of 300%

    SA Equities relative to US Equities (S&P500)

    The chart below reflects the price to earnings of the local JSE to that of the US market. It is quite clear that relative valuations oscillate around some mean (which will also naturally change with time).

    At times local equities tend to be more expensive when compared to global developed equities and vice versa.

    Since 1990, there have been 3 distinct periods when US equities were cheaper – 1994, 2005/2006 and at current valuations

    These periods are indicated by the circled peaks on the chart below, where relative valuations move beyond 1 standard deviation.

    Source: Inet

    Clearly investors have been very disappointed with the returns from offshore over this last decade, after a boon in the 1990’s. Investors at the time should have simply looked at such a relative valuation chart and they would have seen that offshore was expensive relative to local at the time.

    The current scenario is however establishing itself as a wonderful starting point for excess returns from global equities over the next 10 years, given the relative valuations and the firm level of the local currency.

    This is not to say that local investors should sell all local equities, but there is a sound case for a strong tilt to offshore.

    Investment presentation in Jhb

    There are a few seats still available. please contact Myrna on details below

    - Market overview in 30 minutes. Ian de Lange: CA(SA)

    - How to position your retirement portfolio. Vincent Heys: Actuary

    Date: 15 February 2011
    Time: 5:30pm for 6:00pm
    RSVP: 8 February 2011 myrna@seedinvestments.co.za
    Venue: Regus
    2nd Floor West Tower
    Nelson Mandela Square
    Maude Street


    Ian de Lange

    021 9144 966

    Permalink2011-01-26, 17:08:21, by ian Email , Leave a comment

    Global economy

    Inflation and interest rates


    Consumer prices in the UK are running ahead of the upper 3% limit at 3,7%.

    At the same time the economy is in poor shape. The consensus for Q4 GDP numbers was a GDP gain of 0,5%. But the number came out at a decline of 0,5%, which is the first decline since the 3rd quarter of 2009.


    The ECB is looking for a maximum of 2% inflation over the medium term – inflation is currently running at 2,2%.

    The ECB is more “hawkish” on inflation – i.e. it has a long history of trying to supress inflation through the use of higher interest rates. In some respects this history goes back to the hyperinflation experienced in the Weimar Republic of Germany between 1921 and 1923.

    Nevertheless, given the very weak economy, the ECB is not likely to start increasing interest rates in 2011.

    The US

    The US targets core PCE (personal consumption expenditure), instead of headline consumer price inflation. Because this core PCE excludes food and energy components, it places the US Federal Reserve on a current good wicket, as all the price pressure is coming from
    these 2 main sources.

    The US Federal Reserve is likely to hold interest rates at on-going low levels for now, with core inflation running at around 1%.

    The US Federal Reserve is meeting today and tomorrow. It is unlikely that there will be any material change in their outlook and interest rate policy.

    Growth forecasts

    The IMF released its World economic Report today, with an increase in its global GDP forecast in 2011 to 4,4% from a previous estimate of 4,2%.
    Across some of the major economies it has:

    • US growing at 3%
    • Eurozone at 1,5%
    • Japan at 1,6%.
    • China at 9,6%

    Chinese Reserves

    In the 4th quarter of 2010, Chinese foreign reserves rose by USD 200 billion. Over the years, these reserves have moved up dramatically, which, because they are not effectively sterilised through the exchange rate (which is the major bone of contention for the US government), they have the effect of inflating Chinese liquidity.

    Chinese authorities appear to be very blunt about the fact that they will let their currency, the renminbi, appreciate only nominally against the dollar, as they accumulate foreign reserves, thus sustaining their high exports.

    With on-going massive net exports to the world, especially to the US and Europe, foreign currencies pour into the country. The Chinese central bank then prints renminbi in order to buy these foreign currencies, accumulating foreign reserves, but boosting local money supply.

    This money supply boost continues to fuel inflation in China.

    Chinese foreign exchange reserves are reflected in the table below

    Food and energy prices
    Surging food and other commodity prices are coming off the back of excess global liquidity – not necessarily as a function of demand from a still sluggish global economy.

    Source: Ecowin

    For the time being, despite growing concerns about rising inflation, monetary authorities in general will continue to remain accommodative. This will continue to fuel liquidity, which is positive for risk assets such as equities and commodities.


    Ian de Lange
    021 9144 966

    Permalink2011-01-25, 17:43:21, by ian Email , Leave a comment

    Recipe to bake a JSE income cake

    Round up all shares on the JSE that have grown earnings-per-share and/or dividends per share on a consistent, ever increasing, basis for at least the last 5 years (10 reporting periods including interims.) This gives you about 45 shares. Discard all shares that do not trade at least 10 times per day on average, to ensure decent liquidity. This leaves 27 shares. Now show those remaining that have fallen at least 10% from a very recent high, to ensure we are getting a bargain (margin of safety) and/or high yields. That leaves about 10 shares. Buy any of these shares that we issue trough reversal signals for. Repeat during each small market correction (buy on the dips.) Hold shares until we issue sell signals or flag a bear market/recession. Smile as the superior market-beating capital gains and dividend cheques come in for duration of bull market.

    Now the JSE has currently corrected a puny 2.5% recently, but that is not to say that under the surface there are not such bargains about. Have a look at the "income cake" we baked only yesterday:

    The "HI" column shows how much lower each share is trading than its more recent 3-month high (in other words, how much it has recently "corrected".) This is an idea of how much of a "bargain" is currently presenting itself. Up to 15 to 17% in some cases! It is not often we see this many consistent dividend/EPS growers popping up in this type of "bargain" screen. In fact we are lucky to see any of these shares, as in most instances these quality shares are bid up to the heavens and too expensive. Some of these issues are not "bargain basement" yet (look at the Powerstocks Valuation Metric, or PVM scores). Only LEW and GRF are registering more than 1 on the PVM, so they are the "well priced" shares when one looks at P/E, Price/Book and Price/sales figures together as a whole. There are a lot of retailers in this list, obviously the foreigners have been taking profits.

    We are not saying now is necessarily the right time to be buying these shares. We have other tools in our JSW program that will issue the appropriate BUY signals for these shares based on their price action and that of the market as a whole. But the point is nobody ever regretted buying quality stocks after a nice sell-off such as this. Buying on a dip, coupled with safety of consistency of these companies to grow earnings and dividends is the recipe to bake an income cake. The trick is to buy a small basket of them. Some will perform better than others but our research shows the basket as a whole will comprehensively out-perform the market on both capital appreciation and dividend income.

    For more innovative uses of fundamental data coupled with timing tools to deliver superior investing and equities trading results, see our JSW Videos.

    Dwaine van Vuuren
    Founder, PowerStocks Equity Research

    Permalink2011-01-24, 19:50:00, by dwaine Email , Leave a comment

    World population and multinational companies

    The world population is expected to reach 7 billion by the end of 2011 or into 2012 according to estimates. The “Day of 7 billion” has been targeted by the United States Census Bureau to be in July 2012, while the population division of the United of the United Nations suggests later this year.

    The 6 billion mark was reached in 1999, taking an estimated 12 years from 1987. Another 12 years and the world population will be close to 7 billion with the estimate of 8 billion by 2025.

    Going back there are no exact numbers and dates, but the milestone numbers and dates according to census bureau are as follows:

    Source: Wikipedia

    This on-going growth in world population combined with strong economic growth in many emerging markets – which support the quickest growing populations, is, according to Sarasin, allowing companies like Procter and Gamble to boast that they will aim to add a massive 1 billion new customers by 2015.

    This is in addition to the four billion customers that it already serves.

    Procter and Gamble is a branded goods company operating across 80 countries around the world and selling into 180 countries. It markets brands such as pampers, Gillette, Pantene and Duracell, etc

    This is but one example of a global multinational company that is looking to expand into the global markets and take advantage of higher growth rates.

    Some statistics on Procter and Gamble

    • 2010 annual revenues were $78,9 billion, with net earnings at $12,7 billion.

    • Operating cash flow is strong and ahead of net earnings

    • The company spends 3% or $2,5 billion on research and development and 10% on marketing, i.e. $8 billion on brand awareness.

    • In terms of their expansion plans, P&G is looking to introduce all product lines to all countries, and focus on a two-tier product range, one for affluent markets and one for emerging or “starter markets”

    • the company has a history of 54 years of growing its dividend at a compound average growth rate of 9,5%

    Bigger margins in foreign markets

    Data from Legg Mason of the US domiciled companies in the S&P500 index, reflects that between 1995 and 2009 pre-tax margins on foreign business for these companies from the US grew significantly in absolute terms and when compared to the pre-tax margins on their domestic business.

    P&G is just one multinational company that is well placed to grow its business into emerging markets and which investors should be looking to take advantage of in their global portfolios

    Kind regards

    Ian de Lange

    Permalink2011-01-20, 17:00:54, by ian Email , Leave a comment

    Global market update

    The “January barometer” or maxim is “As January goes, so goes the year.” If this saying extends to the prior month of December, then 2011 will be a strong up year, because global markets were very firm in the last month and quarter of 2010.

    For a US dollar investor, equity investments both in the US and across most of the world performed very strongly. Part of this was clearly due to the depreciation in the dollar against other currencies.

    Bill Miller of US based fund managers, Legg Mason Capital Management, in a report at the end of 2010 commented on what would bring the investing public back into equities and away from bonds.

    He noted that while the investing world idolizes Warren Buffett, they almost invariably ignore his investing advice. In 1974 near the bottom of the market, Buffett noted how cheap stocks were. In 1999 near the top, he opined that stocks would see returns way below those experienced in the bull market up to that time. In October 2008 near the bottom, in an article titled “Buy American. I Am” in the New York Times he told people to buy American Stocks. In October 2010 he said “It is quite clear stocks are cheaper than bonds. I can’t imagine anybody having bonds in their portfolio when they can own equities.”

    According to Miller, people poured money into bonds and sold equities. He then asks “So what will bring the public back into stocks?”

    Answering his own question, he says, “The same thing that always does: higher prices.”

    Locally many fund managers are also stating things like “Offshore equity is our asset class of choice”

    They are not alone and a January 2011 report from Legg Mason, notes that many US based investment managers are becoming more bullish in their assessment of prospects for 2011. In the last few months, the bullish camp has gotten very crowded, which, in the short term at least, can be a negative indicator.

    2011 is also a third year of the presidential election cycle and according to the report one has to go back to 1939 to find a pre-presidential year in which the S&P500 declined.

    He notes that “People have been buying bonds, not because they have necessarily considered the risks and rewards of ownership, but because they have gone up so much over the past 30 years.”

    Fair value for US bonds

    According to BCA Research, a long standing independent research business, “The prevailing market consensus has swung quickly in favour of better economic growth.” They go on to say that a steady flow of capital has supported share prices and the year has got off to a good start.

    Source: BCA Research

    Liquidity drives prices and importantly the US Federal Reserve, as the main source of global liquidity, has a commitment to its existing stimulus plans. There is therefore a very low possibility of interest rate hikes in the US this year.

    This in turn is positive for risk assets, which is exactly what the US Federal Reserve wants – i.e. to raise asset prices, increase confidence and stimulate spending and hiring.

    BCA go on to say that equity prices only start to run into trouble when Treasury yields creep above fair value, which according to their models is currently 4,1%.

    The yield on US bonds picked up in the last half of 2010 from 2,4% to around 3,4% - see chart below of the US 10 year Treasury yield. This is therefore still off fair value and investor should not be rushing to buy bonds – quite the opposite

    US 10 year Treasury Yield

    Source: Yahoo

    Possible impediments to a bullish world in 2011

    Some possible risk factors that could strain a generally bullish outlook for global markets, would include the following:
    • A sharp and more unexpected rise in longer term interest rates
    • Oil price moving up too quickly beyond $100/barrel
    • A sharper slowdown in the US
    • Re-escalation of sovereign debt crisis in Europe.

    In general then our longer term view remains one of taking advantage of the relatively attractive values of global equities and where possible and necessary, reducing exposure to asset classes such as bonds which remain unattractive.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2011-01-19, 17:13:03, by ian Email , Leave a comment

    Local economic news

    Ahead of the monetary policy meeting on Wednesday, here is a summary of various economic indicators.

    • Q3 household consumption expenditure gained 5,9% quarter on quarter seasonally adjusted and annualised.
    • Real incomes grew 5,6%
    • December passenger vehicle sales grew 38,9% year on year with total sales in 2010 up 24,7% after falling 25,9% in 2009.
    • Household credit grew by 7,2% year on year in November 2010, up from 6,6% in November
    • Manufacturing production growth for November grew 4,6% year on year, up from 2,3% year on year in October.
    • Mining production data released today increased by a seasonally adjusted 9,6% year on year from 6,5% year on year in October.

    The expectation is for November retail sales growth to be at 6,8% year on year in November, up from October’s 6,1% increase.

    Generally these indicators reflect a steady improvement in the economy in 2010 and point to a continuation in 2011.

    Country rating

    Rating agency, Fitch announced this week that it had revised its economic outlook for South Africa from negative to stable.

    Fitch is expecting GDP for 2010 to be at 2,8%, following the decline of 1,7% in 2009.

    Some of the factors that supported the more positive outlook include low inflation, a strong policy framework, central bank independence, and a history of fiscal conservatism.

    Net foreign purchases of SA Equities

    The chart below reflects monthly net inflows or outflows into SA equities in R billion over a 10 year period.

    Source : Old Mutual

    The latest statistics indicate net purchases of R5,04 billion in December 2010, with the 10 year average at R2,48 billion per month.

    According to JSE statistics, foreigners bought a net R36 billion in 2010, following the R75 billion in 2009. The economist, Kevin Lings notes that over the last 7 years foreigners have bought an accumulated R270 billion of SA equities. Since 1994, this number is a massive R437 billion.

    According to JSE stats of net flows into bonds and equities, for the first time in 2010 since 1994, the bond market attracted bigger flows than local equities. JSE stats indicate that a net R58,6 billion flowed into local bonds.

    These strong inflows naturally helped push the rand firmer during 2010.

    Monetary policy

    This week we will see the release of consumer inflation data. The expectation is that this should be up slightly from the 3,6% in November.

    The Monetary policy committee meets for the first time in 2011 this week. They will announce on any changes to interest rates on Thursday. At this stage, the expectation is for there to be no change to the current repo rate of 5,5%, which in turn drives prime rate, currently at 9%.

    The 10 year average inflation is at 6%.

    While official inflation has remained in the 3-6% band, going forward however, there are some looming concerns, including the rising oil price which is close to $100/barrel and rising food prices, both of which have high weightings in the inflation basket.


    The rand came under some pressure last week. A factor that may have contributed was the announcement coming out of China that it has increased the reserve requirements of its banks by an additional 0,5%. It is doing this to cool down its economy and ahead of the state visit by Chinese President this week to the US, which starts today.

    An expanding economy is a prerequisite for long term growth on investments. But over any shorter period of time, there is a low correlation between investment performance and economic performance and so unfortunately trying to predict the performance of investments based on recent or even impending economic releases does not work.

    In many ways both the strong level of the currency and the more expensive valuation of the local equity market have priced in a fair degree of anticipated good news.

    Please do not hesitate to contact Vincent or Ian at Seed Investments, if you would like to discuss your investment planning and management.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2011-01-18, 16:07:37, by ian Email , Leave a comment

    The Cost of Filling your Car

    In South Africa, as I guess the case around the world is, owning a car is a symbol that shows to the world that you have the ability to go where you want, when you want. This independence is much sought after by those without ‘wheels’, but for those already on the road, the urge is to always ‘upgrade’ to something that more matches your personality/ego. It is no wonder that buying or selling your car can be such an emotional event, with some people even naming their cars!

    You may be asking why I’m bringing up emotional issues in an investment report? Well, put simply, investments (purchases) always involve emotions, and that the best way to optimise your investment (purchase) is often to reduce your emotional involvement! I put purchase in brackets as, unless you buy and sell cars for a living, buying a car is typically not an investment. The cost of running and maintaining a car, and the rate of depreciation, makes car ownership an expense purchase.

    With petrol being one of the costs of running a car, its price can play a big role in your purchasing decision. When petrol is cheap petrol guzzlers don’t cost materially more to fill up than economical cars, but this equation changes as the price of petrol goes up. Taking a look at how the petrol price has moved relative to inflation over the past 10 years, we can see that it has comfortably outpaced inflation over this period (9.2% pa increase, vs 5.8% for inflation).

    For a person whose salary has grown at the same rate as inflation, or even at inflation + 3% per annum, over the last decade, petrol has become a bigger slice of his salary. He has two choices here: either forgo expenditure in other areas of his life, or change his car for one that operates more economically. Over the last 12 months petrol has increased by 11.1%, around 7.5% ahead of inflation!

    In the chart below we can see that the price of petrol (rolling 12 month price change) has been a lot more volatile than inflation over the past decade. The rand price of oil has, however, been the most volatile (by far) of the three. So while everyone complains at the volatility of the petrol price, they should take into account the volatility of the major input into petrol.

    Current weather patterns (extremely cold northern hemisphere, and rainy southern hemisphere) are conducive to higher oil prices – at least in the short term – and coupled with a strong rand at the end of 2010, motorists shouldn’t expect 2011 to be an easy year on the pocket when filling up their cars.

    For links to more investment and economic articles become a fan of the Seed Investment Consultants page on Facebook by clicking this link and following through to our page where you can click the ‘Like’ button at the top of the page.

    Take care,

    Mike Browne
    021 9144 966

    Source: http://www.sasol.com/sasol_internet/frontend/navigation.jsp?navid=11600012&rootid=599999

    Permalink2011-01-17, 17:40:26, by Mike Email , Leave a comment

    Deep Value for the patient investor

    With heady gains on the JSE since March 2009, one wonders if there is any deep-value issues left out there for the cheapskates among us. Things are invariably cheap for a reason, so the next question is whether there is any deep value out there (neglected stocks) that have sound financials (margin of safety). The answer is "yes" but these shares are invariably not highlyliquid and due to their neglected status, patience is required for the market to realise their value. Below is a printout from our JSW program that finds classic Piotroski Value stocks - shares that are priced at signficant discount (PVM column)on a P/E,Price/Book and Price/Cashflow basis, but that have high Piotroski scores (8 and 9) for financial health.

    The list is further filtered to show only shares that trade at least 10 times per day, and is sorted by market capitalisation. If you look at the "HI" column under "% Price Change" you can see how much lower the share is trading than its 3 month high. Deep value is one thing - timing your purchase is another. BEL is showing strong signs of recovery, having made new 5,10 and 20 day highs recently. TPC is interesting as it has shown consistant EPS growth over the last 4 years (8 reporting periods) and has consistantly increased dividend payouts by 22% CAGR for the last 7 years running. Its current yield of over 5% coupled with its valuation makes it an attractive punt for the long term. You can read about Piotroski Value Investing and our real-world tests (with real money) of this style of investing on the JSE over at this link on our website

    Permalink2011-01-14, 13:46:07, by dwaine Email , Leave a comment

    Chart of local market performance

    Yesterday I briefly looked at investment performance across the various global assets in 2010. Today I have focused on returns in South Africa across the various asset classes available for general investment.

    The chart below, courtesy of SIM, looks at discrete annual returns in each calendar year across various asset classes.

    Asset Class returns to end of December 2010

    Source: www.sim.sanlam.com

    These have been colour coded to provide a guide as to what were the best and worst performers in each year over the past 11 years.

    There are a few points noteworthy from this illustration of returns:

    • There is not one asset class that is constantly at the top, despite listed property having had a very good run over the last 11 years.

    • Likewise there is not one asset class that is consistently at the bottom of the log; however inflation and bonds have tended to dominate this position.

    • Twice SA Equities were the worst performer in a calendar year, but they have also been top performer in 4 of the 11 years.

    • Except for a couple of years like 2001 and 2005, foreign equity (as measured in rands) has been a relatively poor performer. It has been particularly weak over the last 4 calendar years. Perhaps time for a rebound?

    Because of the variation of returns across the asset classes, a balanced fund which in this case comprises 65% local equities, 10% bonds, 10% money market, 7,5% global equity and 7,5% global bonds has been the most consistent performer, tending to sit near the middle of the range of performances.

    In most of the years a balanced fund has outperformed inflation and because of the diversity of holdings it will have a lower volatility than pure equities.

    For this reason, a local balanced fund is typically one of the better options for most investors, be they saving for the longer term, or looking at options for their retirement funding.

    Kind regards

    Ian de Lange
    021 9144 966

    Permalink2011-01-12, 17:31:02, by ian Email , Leave a comment

    Recap at the start of 2011

    Compliments of the season at the start of 2011. From all of us at Seed Investments, we trust that you have a prosperous year ahead in every respect. Please don’t hesitate to contact us at any stage to discuss your investment portfolio and investment planning.

    As a recap, let’s look at what happened last year across some markets
    The map below gives a colour coded indication of good indication of market performance over the last year. This colour coded map reflects gains in green and losses in red across the global stock markets in 2010.

    Source : Emerginvest

    Generally 2010 proved to be a solid year for most stock markets across the globe.

    Stock market gainers over 2010
    • Russia gained 22,5%
    • Germany up 16,1%
    • UK’s FTSE100 up 9%
    • SA’s FTSE/JSE gained 19%

    While China continues to grow into a superpower economy, with tentacles across the world, the market lost 14,3% in 2010.

    The little red dot in the middle is Greece. The Athex composite is down 38% over the last year.

    With the strong rand, in dollar terms the local JSE gained 32,4%, outperforming the MSCI World equity in dollar terms of 12,3%

    Within the local market there was however a big disparity in returns from the 3 main sectors. The best performer was the Industrial 25 index, which gained 26,5%. Then came the Financial 15 index up 14,7%, then came the Resources 20 up 12,3%

    Looking broader than just global markets, the big gainers in 2010 were a range of commodities. The chart below reflects performance over 3 months of various markets and asset classes.

    Source: finviz.com

    The big gains however were across commodities. With strong performances from cotton, palladium, coffee, corn, oats etc. The chart above is a 3 month chart across various commodities and markets. Commodities have continued to move up strongly over the last few months.

    Gold has been a very good performer in dollar terms over the last 10 years.

    US Treasury bonds have come under pressure over the last 3 months as long term interest rates moved up from very low levels.

    While commodity prices are firmer, it was then disappointing that local resources were the worst performer of the 3 main indices. Much of this has to do however with the strong rand, which moved up to a 3 year high in December against the US dollar.

    While there remains a lot of enthusiasm for the growth potential of emerging markets, it is not a given that these markets will outperform the developed markets in 2011.

    Kind regards

    Ian de Lange
    Seed Investment Consultants
    021 9144 966

    Permalink2011-01-11, 17:14:49, by ian Email , Leave a comment