As at 30 November 2018, equities, as an asset class, based on the FTSE/JSE All Share Index (Alsi) total return, have returned -12.26% year-to-date. Achieving a negative return is always a bitter pill for investors to swallow; however, after comparing equities to some other asset classes, it becomes more of a bitter brick to swallow.
This is according to Serfaas Badenhorst, portfolio manager at Momentum Securities, who reveals that other asset classes such as cash, inflation-linked bonds (ILBs), regular bonds (ALBI) and government bonds (Govi), have respectively returned +6.65%, -0.34%, +7.05%, and +6.21%. “In fact, the only asset class that has exhibited worse performance than equities is listed property, which achieved a return of -24.46%, year-to-date,” he says.
While conceding that there were very few shining stars in the galaxy of stocks this past year, and that decisions should always be based on a long-term objective, one approach that Badenhorst says definitely bore fruit was being overweight in certain resource counters. “In the South African top 40, the best performing stocks were Anglo American, Anglo Gold Ashanti and BHP Billiton.
“In some instances, this was the result of achieving the upper end of consensus when it comes to production. In the case of Anglo American, copper seems to be the new blue-eyed boy when it comes to metals as it is a key component in the renewable energy and electric vehicle markets,” explains Badenhorst.
“We all know the mining industry is falling on tough times. With commodity prices still under pressure and weaker emerging market currencies, together with weaker investor sentiment, the positive returns from these resource stocks were not completely expected,” he adds.
Although these stocks have come down a bit in the last month, Badenhorst says that the information and data coming from the companies continues to surprise investors in a positive way. “As long as the numbers remain positive, investor sentiment will continue to gain momentum, so these stocks appear to be set to continue this performance into the new year.”
One stock that Badenhorst says has proved to be very disappointing for investors this year is British American Tobacco (BTI). “Traditionally a great rand hedger, the BTI share price has fallen on tough times. While underlying profits came in ahead of consensus, margins on their products are attractive, and the company is churning out cash; headwinds in regulations – especially in the US, with weaker emerging market outlooks – are definitely weighing in on the company share price.”
Despite this, Badenhorst believes that BAT cannot be ignored at these levels. “Along with BTI, other non-performers of 2018 which show promise for 2019 are the likes of Anheuser Busch and, of course, the ever-present Naspers,” he adds.
When looking abroad, Badenhorst says that the US remained one of the best performing regions in 2018. “This was especially true for investors who were exposed to specific technology stocks, such as Amazon, Microsoft, Visa and Mastercard – all performers in what turned out to be a very tough year on the markets.”
In light of this difficult climate – characterised by local volatility, weak emerging markets performance and a global landscape plagued by continued uncertainty, Badenhorst believes that diversification and a long-term outlook remains key. “If this year has taught us anything, it’s that a well-diversified portfolio is able to weather the storm a lot better than concentrated portfolios in tough times. As long as your portfolio is diversified, the best option will always be to stick to your long-term financial strategy.”