How investment managers performed in 2022

For many, the past several years have demonstrated just how increasingly chaotic the world can be and what impact this has on financial markets. In 2020, a global pandemic took center stage, which effectively brought the global economy to a halt. In 2021, much of the world’s focus was directed toward economic stimulus packages and vaccination programmes, and in 2022 geopolitical tensions and inflation took the limelight.

Volatility and uncertainty remained as the dominant financial market themes in 2022. A proliferation of interest rate hikes, the Russia-Ukraine war and fears of a global recession put a drag on performance for most of the year. Yet, market performance in the fourth quarter of 2022 managed to recover some of the losses sustained over the previous three quarters. In South Africa, performance across all asset classes was positive. FTSE/ JSE All Share, FTSE/JSE All Bond, and FTSE/JSE SA Listed Property indices returned 15.16%, 5.68% and 19.31% in rand terms, respectively, over the quarter.

Global stock markets tumbled in 2022, entering bear market territory throughout the year as risk sentiment waned due to five key market drivers.

Firstly, the geopolitical turmoil of Russia’s invasion of Ukraine brought commodity supply shocks given that the two countries are the major producers of energy and food commodities. Consequently, this exacerbated the already existing inflationary pressures with intensified supply shocks, and pushed energy and food prices higher.

Secondly, global inflation soared to a record high in 2022, surpassing most central banks’ targets due to loose monetary and fiscal monetary measures that supported the demand side factors.

Thirdly, tighter financial conditions resulted from the response of several central banks that embarked on an intensified withdrawal of monetary policies by hiking borrowing costs to tame inflation.

The fourth market driver for 2022 was the prolonged Covid-19 outbreaks which disrupted economic activities across the world. However, China was most affected as flare-ups in cases resulted in the Chinese government maintaining its zero-Covid policy measures to control the infections throughout the year, and only lifting it in December 2022.

Lastly, the global economic slowdown worsened in the second half of the year, raising global recession concerns.

Alongside this macro setting, the MSCI All-Country World Index (MSCI ACWI) recorded a negative return of 18% in 2022 from a robust return of 19% in the previous year, in US dollar terms, with most sectors underperforming, while energy was the best performing sector buoyed by growing supply concerns induced by the Russia-Ukraine war. Global equities were negatively impacted by weak performance in emerging markets, the US, Europe and Japan. The S&P 500 Index suffered its worst performance in 14 years, recording a -18.1% return in 2022, from a strong return of 28.7% in 2021, in US dollar terms.

Regionally, the MSCI Developed Markets Index (DM) was marginally protected relative to the emerging markets, recording a negative return of 17.7% in 2022 from 22.4% in 2021, in US dollars, detracted by weak performance in the US and Europe. The MSCI Emerging Markets Index (MSCI EM) recorded a negative return of 19.9% in 2022 in US dollar terms.

The emerging markets stocks were negatively impacted by a risk-off environment and prolonged coronavirus restrictions that negatively weighed on Chinese economic activities. The share of Chinese stocks in the benchmark MSCI EM stands at 31.3%. In the fixed market, global and emerging markets bonds plummeted in 2022 with treasury yields soaring as major central banks intensified monetary policies tightening to control elevated inflation. The JP Morgan Emerging Markets Bonds Index and the FTSE World Government Bond Index (WGBI) recorded negative returns of 10.2% and 18.3% in US dollar terms, respectively. The US cash was the best performing asset class in 2022, recording a positive return of 1.8% in 2022, as it benefitted from the increasing interest rates.

South African equities bucked the global trend, with the FTSE/JSE All Share Index (ALSI) recording a positive return of 4.0% in 2022 from a robust return of 29.3% in 2021. From a sector perspective, local equities were supported by resources and financials which returned positive returns of 9.5% and 8.5% in 2022, respectively.

SA bonds outperformed local equities in 2022, with the FTSE/JSE All Bond Index (ALBI) returning a positive return of 4.3% in the year, from 8.4% in 2021, supported by a positive fiscal consolidation path.

Local cash (STeFI) outperformed local bonds and equities, recording a positive return of 4.9% in 2022 from 3.5% in 2021. It was supported by rising rates which favour the asset class given that returns are linked to the interest rates.

The SA property sector was the worst performing asset class in 2022 as companies maintained their workingfrom-home policies which negatively impacted the office space, with the FTSE/JSE SA Listed Property returning 0.6% in 2022 from robust returns of 36.9% in the previous year.

All the managers in the SA Best Investment View (BIV) category had positive returns for the year, with 7 out of the 15 managers beating the BIV median of 6.2%. Truffle was the best performer for the year in the category benefitting both from stock selection and asset allocation.

Two of the better performing asset classes for the year ending December 2022 were domestic equities and bonds. It was no surprise that Truffle was the best performing SA BIV manager for the year. From an asset allocation perspective, Truffle favoured domestic equities and fixed income during the year, given many SA shares offered meaningful value, while the 10-year bond provided a compelling yield. Exposure to Thungela Resources, Glencore, Naspers, Prosus and BAT delivered strong performance for the fund while exposure to Telkom and MTN detracted from performance. Being the underlying manager within the Nedgroup Investments (Truffle) Managed Fund, the above Truffle commentary also applies to the Nedgroup Investment’s fund.

Aeon – the main absolute contributors to performance were BHP Group, Naspers, Standard Bank, British American Tobacco and Mediclinic International, whilst MTN Group, Mondi, Prosus, Discovery and Barloworld were the main detractors from absolute performance for the year.

The fund did well to overweight resource counters as commodity prices performed well. Decarbonisation, energy security, defence, onshoring, and lack of capital spending on supply in certain commodities were major themes in 2022 supporting commodity prices. Mondi and Barloworld suffered due to the Ukrainian Russia conflict, as both have operations in the affected regions which they have been focusing on to rectify.

Allan Gray – the portfolio’s outperformance was primarily driven by equities which is the largest asset class in the fund. Relative to the Capped SWIX, overweight positions in Glencore, British American Tobacco and Woolworths, and an underweight position in MTN contributed positively to performance. Conversely, underweight positions in Naspers and Absa and an overweight position in Life Healthcare detracted from performance.

Coronation – the strategy’s overweight position in commodities added to performance. Banks continued their strong earnings recovery with a positive return of 18% for the year.. The portfolio had reasonable exposure to the banks. The Industrials index returned -4% for the year but was up strongly in Q4-22 (16%) as major constituents Naspers and Prosus delivered a whopping 25% and 24% respectively in the final quarter of 2022. The large Tencent holding in Naspers/Prosus was similarly impacted and contributed positively.

Counterpoint - the fund’s performance can be attributed to the above-average exposure to domestic equities and listed property securities. The largest equity contributors to performance were Woolworths, Investec Plc and Nedbank. The largest equity detractors from performance were Spar, Ninety One and Life Healthcare.

Foord – the full allocation to domestic equities was positive. Selection was also positive driven by the meaningful weight in Naspers/Prosus, BHP Group, Standard Bank, Anheuser-Busch Inbev and British American Tobacco. Domestic industrials Bidvest and Omnia also contributed positively while Aspen and Spar were the largest detractors.

The allocation to local bonds also added value with core selections in the 3-12 year maturities outperforming the All Bond Index. The low allocation to listed property was neutral, but selection detracted, with core holdings Capital and Counties and Fortress A underperforming. The holding in physical gold ETF, Newgold, was also positive on the higher rand gold price.

MandG - from an asset class perspective, the largest contributors to the fund’s performance over the year came from exposures to domestic equities and domestic nominal bonds. The domestic equity component contributed the most to the annual return, outperforming the Capped SWIX index handsomely. Overweight positions in Investec Plc, Glencore and Naspers/Prosus were the largest contributors to performance. Exposure to the longer end of the yield curve was also a positive contributor.

Ninety One – 2022 was the first year in six that the strategy has underperformed the peer group median and only the second calendar year in the past 10 years. Equity selection was the primary negative contributor, while relative gains from asset allocation added. The overweight allocation to banks such as Absa and Nedbank as well as Naspers added to performance. These gains were however offset by the relative decline from an underweight allocation to Sasol and Woolworths, as well as overweight positions in Gold Fields and Capitec.

The relatively high allocation to domestic bonds, as preferred fixed income exposure, however detracted marginally, especially during the first six months of the year.

The Global Best Investment View category of the Manager Watch survey delivered a muted performance for the year, underperforming the domestic mandates with a differential of 4.3% between the medians, with returns of 1.9% and 6.2% respectively. For the year, the majority of the asset managers in this category kept their domestic asset allocation stable with the exception of Prescient and Coronation, who decreased their allocation to domestic equities by 19.9% and 14% respectively, over their positions in December 2021.

While asset managers welcomed the decision by the National Treasury to increase the offshore allowance for retirement funds to 45% from 30%, most managers still remain close to the 30% mark for investment in international assets. The average exposure to international assets of the participants in the peer group was 29.9%. Of the 40 managers, only 7 were lower than 30% by more than 5%. ClucasGray was the lowest at 15.1% followed by Northstar on 17.9% with these two asset managers finishing in positions 7 and 14 out of 40 respectively, when comparing their performance for the year relative to their peers in the survey.

Although the limit of global exposure has increased, balanced managers have had mixed views but generally are yet to go to the maximum allowed in their respective best investment view balanced portfolios with two managers getting quite close. Coronation and Prescient were the two asset managers in the category who had the highest exposure to international assets at 43.2%. This high exposure to international assets did not contribute positively to their performance as they ended in positions 36 and 39 respectively for the year when compared to their peers in the category.

Following up on its excellent performance in 2021, the best performer in the Global Best Investment View category of the survey was PSG who returned 11.3% for the year ended 2022.

For PSG, all asset classes contributed positively, with positive instrument selection in all portfolio segments. Defensive put option hedges also contributed positively as headline equity indices were weak. Notable individual contributors were Grindrod Shipping Holdings Ltd (which was sold during the year), Hosken Consolidated Investments Limited and offshore oil drilling company Noble Corp. Positions in Quilter plc, Liberty Global plc and Discovery Ltd were the top detractors over the year.

Absa – the fund’s underweight position in domestic equities added some value when compared with cash but stock selection delivered a strong positive contribution to overall performance. Above average exposure to small and mid cap domestic stocks, as well as banks and financials, delivered excellent returns.

The overweight positon in cash contributed positively as cash was the best performing asset class over the measurement period. The fund’s overweight position in bonds detracted marginally as bonds underperformed equities and cash. The fund held low exposure to global equities and bonds.

Aeon – the main absolute contributors to performance were Naspers, Johnson & Johnson, Unicredit, BHP Group and AngloGold Ashanti whilst Alphabet, Microsoft Corporation, Amazon, MTN Group and Volkswagen were the main detractors from absolute performance for the year.

The portfolio was underweight the South African consumers and financials sectors. The exposure to high duration equity assets (technology sector) was the greatest detractor. This was primarily due to the increasing interest rate cycle pressures and hence recession concerns having an affect on de-rating the sector due to a switch from growth counters to more value and defensive oriented shares. The fund did well to overweight resource counters, as commodity prices performed well. Decarbonisation, energy security, defence, onshoring, and lack of capital spending on supply in certain commodities were major themes in 2022 supporting commodity prices.

Allan Gray – the portfolio’s outperformance was predominantly driven by domestic equities which outperformed the Capped Swix by 8.7%. In addition, outperformance was also driven by the foreign ex-Africa component, where hedged equities insulated returns.

Relative to the Capped SWIX, overweight positions in Glencore, British American Tobacco and Woolworths and an underweight position in MTN contributed to performance. Conversely, underweight positions in Naspers and Absa and an overweight position in Life Healthcare detracted from performance.

The outperformance in the foreign ex-Africa component was primarily driven by stock selection, specifically exposure to shares in the energy sector.

The outperformance in the foreign ex-Africa component was primarily driven by stock selection, specifically exposure to shares in the energy sector.

Coronation - The high weighting to domestic equities, which outperformed global equities, benefitted the strategy over the year. Within the strategy’s global exposure, its emerging markets position (which detracted earlier in the year) came through strongly in the fourth quarter of 2022 (Q422). Bond yields rose rapidly through most of the year. The strategy continues to have no exposure to developed market sovereign bonds.

Within our SA equity selection, our overweight position in commodities added to performance. The resource sector rose 9% for the year, helped by a strong Q4-22 (16%). Energy prices spiked earlier in 2022 in the face of Russia’s invasion of Ukraine, with a broader surge in commodities in Q4-22 as markets anticipated strong demand into 2023 on the back of China’s reopening. The Industrials Index returned -4% for the year but was up strongly in Q4-22 (16%) as major constituents Naspers and Prosus delivered a whopping 25% and 24% respectively in the final quarter of 2022. The large Tencent holding in Naspers/Prosus was similarly impacted and contributed positively.

Foord – the full allocation to domestic assets added value with domestic equities outperforming foreign over the year. Selection was also positive driven by the meaningful weight in Naspers/Prosus, BHP Group, Firstrand, Standard Bank, Bidvest and Omnia. Aspen and Spar were the largest detractors.

Foreign assets also contributed positively with good absolute and relative performance in the Foord International Fund on S&P500 hedges in addition to good alpha in the Foord Global Equity

Fund on the underweight to US tech companies and more latterly the meaningful weight in Chinese companies. The moderate allocation to local bonds was neutral but added value with core selections in the 3-12 year maturities outperforming the All Bond Index. The holding in physical gold ETF Newgold was also positive on the higher Rand gold price.

MandG – from an asset class perspective, the largest contributors to the fund’s performance over the year came from exposures to domestic equities and domestic nominal bonds. The domestic equity component contributed the most to the annual return, outperforming the Capped SWIX index handsomely. Overweight positions in Investec Plc, Glencore and Naspers/Prosus were the largest contributors to performance. Exposure to the longer end of the yield curve was also a positive contributor. The largest detractor from the fund’s performance was the exposure to international equities.

Ninety One – 2022 marks the first calendar year in six that the strategy has underperformed the peer group median. It is also only the second calendar year of underperformance in the past 10 years. Domestic equity selection was a negative contributor, while relative gains from asset allocation and offshore asset selection added. The overweight allocation to banks such as Absa and Nedbank as well as Naspers added to returns. These gains were however offset by the relative decline from an underweight allocation to Sasol and Woolworths, as well as overweight positions in Gold Fields and Capitec. The relatively high allocation to domestic bonds, as the preferred fixed income exposure, however detracted marginally, especially during the first six months of the year.

Within the fund’s offshore allocation, the reduced allocation to equities provided some protection against the sharp decline in risk assets. These gains were further supported by an increased exposure to more defensive equity sectors such as Healthcare as well as the increased allocation to energy counters. The increased exposure to specific global developed market bonds towards the latter part of the year added to returns.

OMIG (Balanced) - Global bond yields rose significantly which led to the worst return experienced by debt holders in many years. In terms of allocation, the fund mitigated this capital destruction with the limited exposure to global bonds during the year. Instead, the fund had significant exposure to emerging market debt which outperformed developed market bonds and resulted in a positive allocation effect.

In terms of selection, the fund’s equity allocation had a bias to value over growth for most of the year and this aided returns. Old Mutual Value Global Equity Fund outperformed the already strongly outperforming value index resulting in positive selection. Additionally, almost all the global money market exposure within the fund was invested in USD cash. This marginally blunted some of the capital losses within the rest of the fund, and resulted in positive selection within global cash as rate hikes brought on a stronger US dollar. Overall, while loss of capital is never the ideal outcome, the fund managed to mitigate these negative returns to some extent in a year that was particularly challenging.

Prescient – the Prescient Balanced strategy, whilst taking the full 45% offshore allowance, does not expose investors to the full volatility profile of the rand, preferring to hedge around half of the offshore exposure to reduce volatility. As such, the strategy did not gain as much as peers from the rand selloff to hedge out the global rut. Adding to this, the strategy actively participates in the fixed income market – which was hit hard in the global hiking environment, as well as increases in spreads from the Russia-Ukrainian conflict. Essentially for the strategy, the main detractors from performance were its increased offshore exposure, with less currency exposure than peers, and its allocations towards fixed income instruments with duration. With all of this in mind, the manager is satisfied to see that during the worst-case scenario the strategy only underperformed by low single digits and has since recovered a significant amount of alpha in the risk-rebound for global investments.

Rezco – since the fund was predominantly positioned in domestic bonds and money market, the largest contribution to performance come from these two asset classes. The Rezco Value Trend fund holds a percentage of the Rezco Global Fund (which has predominantly more assets allocated to foreign bonds and money market) which contributed significantly to the performance of the fund.

The fund held a small weighting of commodities which was the biggest detractor from performance. International bonds and equities were also two detractors to the overall performance of the fund.

STANLIB – the main detractors from performance were offshore equities and bonds. Global yields continued to rise across the curve, in line with heightened inflation expectations, increased central bank short-term interest rates, and a strong US dollar. This was all negative for the quality growth style of investing as well as geographic exposure to emerging markets. The fund’s equity exposure has been overweight these factors, and this had a negative impact on absolute fund and peer relative performance.

From a domestic allocation effect, the relative lower exposure to domestic equity detracted, but was offset somewhat by the higher domestic bond holding, with domestic bonds outperforming domestic equity for the period. Domestic equity had a slightly negative stock selection effect but domestic bonds contributed from a security selection effect.

From a global perspective, equity selection was the biggest detractor within the fund. Overweight exposure to growth style and geographies particularly emerging markets added to underperformance after a promising start in 2021.