It must be said that Coronation Fund Managers have been underperforming in their equity funds over the last 5 years owing to a very bad 2015 and 2018. Over a longer time period they are still one of the top performers. If we look at the Coronation Equity fund, they are 14th out of 80 funds over a 7-year period, and 4th out of 59 funds over a 10-year period. For this year up to 30th April, their Equity fund is ranked 4th out of 166 funds.
What is commendable about Coronation is that they admit their mistakes and agree that owing to the size of their funds, they can be “early” in their investment calls, resulting in an underperformance for a year or two before the market and prices catch up to the value they identified. This can be clearly seen in the jump in performances from 2007 to 2008, and 2015 to 2016. The bottom line is that Coronation does have an incredibly strong team of analysts and features very high on the integrity scale when it comes to communication with investors in their funds.
Looking at what they have to say about markets we can break it down as follows:
The USA:
The overall equity market has performed very well over the past few years, underscored by low interest rates; strong GDP growth; low unemployment and inflation; and generally good company earnings. The technology stocks have shot the lights out, making the index rather expensive relative to other regions. The dollar is very strong and bond rates very low. Investing in the US carries with it some risk owing to these factors and selective buying is a must.
Some market commentators are shouting from the rooftops that South Africans should take all their money and buy international investments. This is a very irresponsible thing to do, especially for people on pension, for these reasons: Firstly, never forget the past. If you invested in the US in 2000, you would have received 0% growth in dollar terms for 10 years. This can happen again, especially with the US market not being cheap at the moment. Secondly, you receive almost no interest on cash investments, forcing you to take on equity risk. Thirdly, the rand is trading at oversold levels at R15/$, which brings currency risk into the equation.
One has to remember that as a pensioner, your cost of living increases by at least the rate of inflation, and this cost of living has to be financed by your return on your investments. So in 10 years’ time, your cost of living would have increased by probably more than 50%. So, should you take all your money offshore and the US equity markets repeat the 0% return from 2000 till 2010; the rand goes back to fair value at say R13,60/$ (losing you 8,6% in currency value) and stays there; and you get 0% interest on your dollar cash; you will have very little money left in 10 years’ time.
The point we are trying to make is that there is no way of knowing what will happen in the future and the only way to avoid a total catastrophe is by diversifying your investments, giving you the ability to live on that portion of your investment that is performing well whilst giving the underperforming portion time to recover.
South Africa:
This is an area we all know well because we live it every day. Coronation believes that there are some multi-national companies listed in SA like BATS and MTN who have done horribly over the last year or two and should recover soon. They do not believe that companies exposed mainly to the South African economy like the retailers, property, insurance and banking stocks are cheap enough yet, but they are very close to being a good buy. They believe that Moody’s will downgrade us to junk status before March 2020 but this is already reflected in the bond prices. All in all they feel better about SA than they felt when Zuma was still president but not enough to be eager investors.
UK and Europe:
The place is a mess with Brexit and divided government in the UK; and slow growth in the EU.
China:
The trade wars can have longer-term negative implications and the debt levels should be managed carefully. They do, however, have room to stimulate the economy without adding to the debt problem.
