Old Mutual Investors comment - Sep 07 - Fund Manager Comment25 Oct 2007
The equity market delivered a strong performance during the quarter with a total return of 6.7%. This return was, however, characterised by enormous volatility on the back of investor fears around the crisis in the US sub-prime market. The market was down by as much as 13% at one point, before recovering strongly from mid-August.
The best performing local sectors over the quarter were industrial metals (+18.7%), general mining (+16.8%) and construction & materials (+13.9%), while the worst performing sectors were household goods (-19.5%), forestry & paper (-17.0%) and healthcare equipment (-15.7%).
We did not make major changes to the portfolio during the quarter, but started adding to undervalued shares, i.e Mondi, Old Mutual, Sasol and Investec. We also trimmed the interest rate sensitive part of the portfolio against the background of rising inflation and further rises in interest rates. The fund is still positioned to benefit from a strong local economy by having an overweight position in local industrial companies as well as local banks. Resources exposure was kept neutral, with small companies being underweight.
Although we maintain our belief that equities will be the best performing asset class over the next 12 months, we expect the higher market volatility to continue in the months ahead.
Old Mutual Investors comment - Jun 07 - Fund Manager Comment24 Aug 2007
The second quarter of 2007 delivered a credible performance with the All Share Index appreciating by 4.3% on a total return basis. Investor sentiment was supported by strong global markets as well as emerging markets that continued to outperform. Resources were the biggest contributor to this positive return, on the back of strong commodity prices. Financials, on the other hand, performed poorly due to the negative showing by banks, mainly due to concerns about interest rates. We kept the broad sector allocation of the portfolio the same, while performing relative value switches within the sectors. The fund is still positioned to benefit from a strong local economy by having an overweight position in local industrial companies as well as local banks. Resources exposure was kept neutral. Although banks underperformed the market over the first part of this year, we remain confident that bank valuations will catch up with the market as they continue to deliver strong earnings growth. Equity investors experienced exceptional returns over the last four years and it would be unrealistic to expect similar levels of growth to continue. However, we continue to hold the view that, against the background of continued strong real earnings growth, driven by structural change in the local economy, equities will prove to be the best performing asset class in 2007, albeit at lower nominal levels.
Old Mutual Investors comment - Mar 07 - Fund Manager Comment09 May 2007
The first quarter of 2007 delivered a strong performance with the All Share Index appreciating by 10.4% on a total return basis. The market was characterised by increased volatility driven by the international equity markets as well as commodity based shares. During the period, the resources sector outperformed the financial and industrial market as commodity prices strengthened and the rand weakened. The Investors' Fund performance was in line with the All Share Index performance for the quarter. The fund benefited from being overweight in Amplats, BHP Billiton and Mittal, while our underweight positions in SA Breweries, Old Mutual and Liberty International enhanced relative performance.
We kept the broad sector allocation the same, while performing relative value switches within the sectors and reducing the cash level in the portfolio. The fund is still positioned to benefit from a strong local economy by being overweight in local industrial companies as well as local banks. Resources exposure was kept at a neutral position.
Following the increased volatility and the recent strong price appreciation, investors may feel anxious about having investments in local equities. We believe, however, that against the background of continued strong real earnings growth, driven by structural change in the local economy, equities will prove to be the best performing asset class in 2007. On the other hand, investors should lower their return expectations and expect continued higher volatility levels.
Old Mutual Investors comment - Dec 06 - Fund Manager Comment27 Mar 2007
The fourth quarter of 2006 proved to be an excellent period for the local equity market, with the All Share Index appreciating by 12%. This strong performance was driven mainly by the financial and industrial sectors, interest rate sensitive stocks (banks and retailers) in particular and telecoms. Investor sentiment was helped by continued strong company earnings performance and the view that short term interest rates may be close to a peak. Furthermore, global equity markets lent support to the local market by performing strongly. The Investors' fund had a very good quarter relative to the All Share Index, with its overweight positions in interest rate sensitive stocks, telecoms and its underweight position in resources.
During the quarter we continued to reduce our resources exposure by cutting Anglo American, Billiton and Goldfields and increasing our financial and industrial exposure, especially in the interest rate sensitive stocks (JD Group, Woolworths, Peregrine and Standard Bank).
Having had such a strong performing market over the last three years, the logical question is whether the market is now overpriced. Although the price earnings ratio has been rising the market is not overpriced, especially if you discount the expected earnings growth one year forward. However, with rising interest rates, overborrowed consumers and healthy company margins, we expect the rate of earnings growth to decline. So, although we believe the equity market will deliver attractive returns, we want to caution investors to lower their expectations on returns to more realistic levels.