Page 28 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 1

Lessons from 1969
Bull Market
The crash of 1969 in South Africa was certainly a bad
A persistent and prolonged one. Judged by the JSE Overall index (as the JSE All Share
period of rising market prices. index was then called), and ignoring dividends, the share
In the financial markets, a
“bullish” person believes that prices are market took around 10 years to get back to the levels it had
about to rise. A bull trend is therefore a reached in 1969. Investors who bought at the peak, in May
trend that is moving upwards. A period of 1969 (and, unfortunately, there were a lot of them) had to
rising prices could also be referred to as a wait 10 long years to see a real return on their investment.
bull run or a bull phase. The opposite of a Most didn’t wait, choosing rather to take their losses,
bull market is a bear market. further fuelling the decline in prices.
The crash had long-lasting negative effects. It scared
many people away from excellent investment
opportunities available in the early 1970s, and inhibited
Market Bubble the development of new products for over a decade.
A “market bubble” refers to an Yetwiththe benefitofhindsight oneofthe lessons of
unsustainable surge in asset the 1969 crash is the resilience of equity markets over time.
prices that has no solid basis. As they have in all other equity market crashes, share prices
Soaring valuations are followed by did recover and surpassed their former dizzy heights. Other
dramatic collapses. Famous examples are important lessons were learned about how not to invest in
the Tulip Bubble (1637), the South Sea unit trusts.
Bubble (1720), and the Dotcom Bubble The worst losses were suffered by investors who got
(2000). Market mania can take several into the market in the final bull phase. Industry asset
years to play out.
doubled in the last five months of the bull run, and unit
prices rose by an average of 36% at a time when inflation
was only 3.4%. The huge inflows in May meant that many investors had entered the market at its
most expensive. Investors who invested before the final bull phase – or who staggered their
purchases – were not nearly as hard hit when the bubble burst. In fact, an investor putting a level
monthly amount into the market from June 1965 to February 1972 would only have been in the red
for 13 of 81 months, and in only one of those months would the decline in portfolio value
(compared to the amount invested) have exceeded -10%.
With the decline in share prices, share market dividend yields rose significantly. An investor
who entered the market in 1968 and who reinvested dividends and interest income from unit
trusts would have been showing a real return in five or six years. While this might sound like a
long time, it must be remembered that this was against the background of a severe economic
recession and a major share market crash.
Positive effects of the 1969 crash were therefore:
An appreciation of the dangers of market bubbles, and the need to stagger investments,
especially large lump sum investments.
A general acceptance that equity investments, and unit trusts in particular, need to be
treated as long-term investments (ideally five years or more).
More responsible marketing by the industry, which has ever since made a greater effort to
caution investors against the dangers of buying high and selling low.

An Explosion of Funds
Growth in the industry, for all the reasons stated above, was very slow during the 1970s. Only
three funds were launched between the crash of 1969 and the end of the next decade, taking the
total number of funds from 9 to 12. Standard Bank launched South Africa’s 13th fund (a gold fund)
in October 1982.
The unit trust industry came to life again in the second half of the 1980s, following the fortunes
of the share market, which had entered a new bull phase.
Twelve funds had been launched in the 15 years between 1965 and 1980. In 1987, as the JSE
followed overseas markets to dizzy heights, 11 funds were launched in one year alone.

26 Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts