After enduring three challenging months, investment markets experienced a robust rebound in November, marked by double-digit increases in global equities. In this month’s comprehensive recap, Corion’s David Bacher delves into the reasons behind these shifts and the specific impacts. He highlights both the top-performing equities and the money managers who navigated these changes successfully. His insights were shared in a conversation with BizNews editor, Alec Hogg.
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Edited transcript of the Interview between Alec Hogg and David Bacher
Alec Hogg: Early in October, amid market turmoil, we published an article analyzing historical trends suggesting strong markets from November to May. David Bacher, author of the Corion Report, joins us to review November’s extraordinary market performance. David, impressive turnaround with data already available. Why was November so exceptional?
David: Well, coming off three consecutive months of losses, the market was down almost 10%. Historically, such corrections often led to favorable outcomes. Additionally, investors believed the US Fed would keep interest rates steady or even cut early next year, responding to positive inflation indicators.
Alec Hogg: So, the focus was on inflation and a shift in investor perception. But the magnitude of the jump, especially in individual shares like those on the Johannesburg Stock Exchange, was notable. What drove this?
David: Equities are inherently volatile, and while uncommon, substantial gains do occur. Short-term volatility can be challenging, but missing out on months like November by avoiding equities may prove costly in the long term.
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Alec Hogg: David, let’s discuss the remarkable surge in Harmony Gold, Anglo-American Platinum, and Process shares, all posting significant gains in a single month. What fueled this?
David: Harmony Gold’s 35% gain resulted from strong quarterly sales, robust production numbers, and geopolitical tensions boosting the gold price. Naspers and Prosus also delivered a solid trading update, driving their shares higher.
Alec Hogg: Unfortunately, our business portfolio lacks Harmony Gold, but we’ve seen success with Naspers and Prosus. On the flip side, Sibanye Stillwater, once marginal like Harmony Gold, underperformed, possibly tied to Palladium dynamics. What’s your analysis?
David: Sibanye faced company-specific challenges, announcing a restructuring of SA operations, issuing a significant convertible bond, and revealing potential job losses. This positioned them less favorably compared to competitors, exemplified by Amplats’ substantial gains.
Alec Hogg: Industrials on the JSE had the best run, up nearly 11%, outpacing resources’ 6% increase. Surprisingly, property, often disregarded due to remote work trends, saw a significant rebound. Any insights into this?
David: Property is sensitive to interest rates, and as bond yields dropped, it benefited the property market, contributing to its strong performance.
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Alec Hogg: Globally, interest rates have peaked, set to decline, favoring equities. Individual unit trusts showed Coronation leading, driven by its overexposure to Naspers and Prosus. However, ClucasGray equity, typically a strong performer, lagged. Any reasons for this?
David: Coronation’s performance was influenced by its significant exposure to Naspers and Prosus. ClucasGray’s short-term underperformance, about 3.6%, is not alarming considering its strong medium to long-term track record.
Alec Hogg: Global equity funds performed well, with Sygnia Faang Plus and Sygnia’s Fourth Industrial Revolution showing interesting contrasts. The former, driven by big tech, outperformed, while the latter, also tech-focused, did not. What does this reveal about the market?
David: The performance disparity highlights the dominance of a few tech giants in driving overall market returns. Despite the success of tech-heavy funds, the broader market did not reflect the same level of gains.
Alec Hogg: Sean Peche’s value-focused Randmore fund stood out, delivering a strong one-year performance of 38%, defying the dominance of big tech stocks. Your thoughts?
David: Sean Peche’s persistence in value investing paid off, showcasing a turnaround after a challenging decade for value managers.
Alec Hogg: PPS Equity attracted significant inflows, but you cautioned against reading too much into this due to volatility. Any noteworthy observations in terms of unit trust performance and inflows?
David: Unit trust inflows, like PPS Equity, can be volatile and depend on the size of the asset manager. MNG as an equity fund, part of Prudential, saw substantial inflows, potentially indicating offshore investors recognizing value in the local market.
Alec Hogg: David, Prudential as a house was always known in South Africa for being very focused on value. Is MNG in a similar vein?
David: It is. It’s not as deeply value-oriented as other managers. Positioned as relative value, they consider value relative to the benchmark but not to the same extent as Alan Gray, Perpetua, Excelsior, or Camissa (formerly Kagiso Asset Management).
Alec Hogg: Outflows for the month show Old Mutual Investors facing challenges again. Alan Gray Equity is also prominent on this list, not where a unit trust manager wants to be.
David: True. Alan Gray Equity is among the largest equity funds. Outflows may not necessarily mean a loss of assets for Alan Gray but rather a reallocation to other funds, possibly part of the trend towards offshore investments.
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Alec Hogg: Looking ahead, we’ve had three challenging months followed by a strong rebound. Can we anticipate a positive December and January, as suggested by previous research?
David: It’s a time for balance and better diversification. Global bond yields at 4.5% offer reasonable returns. While tech-heavy American shares may be overvalued, there’s still value in the broader US market and South Africa. Stay invested with a tempered approach.
Alec Hogg: So, stay committed to your selected money manager, avoid trying to time the market, and trust them over the long term.
David: Absolutely. Identify managers with long-term potential, even if they’ve had a tough one-year period. Investing more during challenging times often yields better results than the common retail investor behavior of buying high and selling low.
Alec Hogg: David Bacher, co-founder of Corion and author of the Corion report, provides insights into the past month. November was impressive, and while December’s outcome is uncertain, the market has rebounded from earlier challenges. I’m Alec Hogg from BizNews.com.
For access to the Corion Report click the file below
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