Bets on resources shares determined the fate of domestic equity general funds, as well as that of domestic asset allocation funds, which have been relying on the domestic equity component of their portfolios to drive performance.
The average return of the domestic equity general funds was minus 2.32 percent for the quarter and just 4.23 percent for the year to the end of March. The benchmark FTSE/JSE All Share index (Alsi) returned 2.92 percent and 11.14 percent re-spectively for the same periods, according to ProfileData.
However, the returns of individual funds are diverse. For example, over one year, Stanlib's Nationbuilder Fund returned 28.48 percent, while Old Mutual's High Yield Opportunity Fund produced minus 13.95 percent.
The Nationbuilder Fund invests in shares that are expected to benefit from government and private sector spending on infrastructure.
The domestic equity returns are diverse even over the three-year period to the end of March, although the margins between the top and bottom performers are not as wide as they are over the shorter terms. For example, the top-performing domestic equity general fund, the ValuGro Equity Fund, returned 36.17 percent a year over the period, while the worst performer, again the Old Mutual High Yield Opportunity Fund, returned 19.28 percent a year.
Old Mutual's fund has a mandate to invest in the shares of companies that offer high dividend yields (the dividends as a percentage of the share price). These shares tend to be undervalued, or cheap, relative to the market and, as a result, the fund has been heavily invested in financial and industrial shares. The Opportunity Fund has avoided most shares, except platinum shares, in the mining and resources sectors. This has had a negative effect on its short-term performance.
However, Mike Schroder, the fund's manager, says the High Yield Opportunity Fund aims to provide a growing income through dividends, and it has been very successful in achieving this goal.
The fund was paying a dividend yield of 4.3 percent at the end of March (against the Alsi's 2.6 percent dividend yield). Investors who have been in the fund since it was launched 10 years ago have recouped their capital in dividends and are earning a tax-free income of R24.60 in dividends for every R100 invested.
Although Old Mutual's fund is classified as an equity general fund, it has a value bias, and, on average, funds in the domestic equity value sub-category have also not performed well over the short term. The value sub-category returned on average minus 0.08 percent for the year to the end of March and minus 4.92 percent for the quarter to the end of March.
The top performer over one year, the Stanlib Value Fund, returned 14.14 percent, and the worst performer, the Investec Value Fund, returned minus 11.88 percent.
However, the three-year average returns of funds in the domestic equity value sub-category are still a strong 27 percent a year and 35.75 percent a year over five years.
Value fund managers often punt their funds as being ones that will best withstand market downturns, because they invest in the shares of companies that are undervalued and unlikely to suffer big losses.
Sanlam Multimanager International chief executive officer Anet Ahern says over the past six years value funds both locally and internationally have been the heroes in terms of performance.
Locally, she says, these funds have avoided expensive resources shares and have bought the cheaper financial shares expecting to benefit when these shares' prices improve.
But, Ahern says, financial shares could stay cheap for up to a year, and this will affect the short-term performance of unit trust funds that invest in them.
The average returns of domestic asset allocation flexible funds over one year to the end of March is 4.93 percent. The top-performing fund, the Blue Bay All Seasons Fund, returned 16.41 percent, while the worst performer over this period, the Centaur Flexible Fund, returned minus 9.33 percent.
Over the three years to the end of March, the top-performing flexible fund was the Rezco Value Trend Fund, with a return of 32.38 percent a year. The worst-performing fund that has equity exposure was the Efficient Flexible Fund of Funds, with a return of 11.83 percent a year for the three years.
You, as an investor, may be feeling overwhelmed by news of the recent volatility in investment markets and reports on how the subprime crisis in the United States, the depreciation of the rand, rising domestic inflation, the local electricity crisis and other issues will affect the markets.
You are likely to find yourself all at sea, unless you have a very disciplined approach and philosophy when setting investment strategies, Mohini Naidoo, an investment analyst at Nedgroup Investments, says.
Tony Barrett, the head of wealth management at Barnard Jacobs Mellet, says you should stay aligned to your long-term investment strategy and seek professional advice from an adviser if you are worried about the performance of your investments in relation to your goals.
Barrett says the cost of doing this will prove both beneficial and rewarding in the long term. "We do believe that value is starting to emerge within certain sectors and certain shares, and that a measured and tactical buying approach should be implemented. The risk and opportunity cost of staying out of the market, and of missing out on the recovery and inevitable growth in equity markets, is a cost that few portfolios can bear," he says.
On another note, Stanlib warns that you shouldn't let the JSE's heavy resources component fool you into thinking your equity investments are doing okay. More than 50 percent of the FTSE/JSE All Share index is made up of resources shares, but very few equity portfolios would have 50 percent of their holdings in resources, because the sector has traditionally been associated with relatively high volatility and risk, Paul Hansen, the director of retail investing at Stanlib, says.
The latest interest rate increase is likely to have a negative effect on corporate earnings and the projected returns of non-resources shares, he says. "In view of the continuing commodity boom, resource counters may escape the fall-out from the latest rate rise and could do quite well. An overall view of the JSE might therefore reflect only a mild reverse in the coming weeks. In fact, the impact could be quite severe in some sectors," Hansen says.