Favourable risk-return valuations amid varying equity returns

The diverging performance from different JSE sectors in October resulted in mixed returns for South African equity funds for the month, with globally-oriented Resources and Industrial counters posting good gains and locally-focussed Financials and Retail companies largely in the red. This resulted in a wide dispersion of returns from unit trusts in the ASISA SA General Equity category for the month, ranging from as high as 10.0% to as low as -1.0%, with a category average of 3.5%, according to Morningstar. M&G Investments’ equity funds added to their strong outperformance:  for the 12 months ending 31 October 2021, the M&G Equity Fund returned an impressive 49.7% and the Dividend Maximiser Fund 45.2% (both net of fees), beating their benchmark (the average equity fund performance within the ASISA SA Equity General Category) by 13.7% and 9.2% respectively*.

The diversification of the M&G Equity and Dividend Maximiser Funds led to another month of solid outperformance for both funds despite their overweight in banking stocks. Dividend Maximiser, in particular, saw strong relative contributions from its overweights in Tsogo Sun and Famous Brands, as well as industrial equipment supplier enX Group and platinum producers Northam and Anglo American Platinum. The latter were buoyed by good gains in platinum and palladium prices over the period. 

Meanwhile, as could be expected, the larger relative detractors from the fund’s returns came from our preference for banking shares like Absa and Standard Bank, and other consumer-dependent stocks such as Truworths, MTN and automotive group Consolidated Motor Holdings. Still, our underweights in FirstRand and Capitec added value, helping to offset the weakness in our other bank exposure. After the mix of positive and negative developments in October (such as new international aid for Eskom’s transition but renewed loadshedding), we still believe South Africa is on a positive recovery path and that asset valuations offer attractive opportunities for investors. There’s still a very favourable risk-return equation to take advantage of in both local equities and bonds.

For more information, please feel free to contact our Client Services Team on 0860 105 775 or email us at info@mandg.co.za.

*Source: M&G Investments and Morningstar as at 31 October 2021.