For once, the general equity funds were able to comfortably outperform the all share index in the September quarter. All the actively managed general equity funds outperformed the index over three months. Over six months, only the FT NIB Prime Select fund, which has a large international equity holding, underperformed.
The regulatory requirement that forces funds to hold 5% in cash would have helped, as would the 10% limit on any single share.
This did not help when large shares such as Anglo American were running, but it has helped in a quarter when Anglo's price was blitzed after the release of the draft mining charter. The mining finance index, dominated by Anglo, fell 22,1% during the quarter.
The place to be over the past six months has been midcap industrials. Investec Value, which invests primarily in this sector, was the top fund in the industry over six months with a 21,1% return.
But fund manager John Biccard says the top 40 shares have fallen so far that he has been prepared to build up a 10% holding in large caps, in shares such as Sasol, Absa, Iscor and AngloGold.
He is still prepared to hold chunky positions in midcaps such as Tongaat Hulett, AECI and Murray & Roberts.
"The SA economy continues to surprise on the upside, and international markets are still hitting new lows, so I am not looking at a major change in strategy."
There has been little profit-taking in the fund. Biccard just trimmed the holdings in Medi-Clinic and Tiger Wheels.
International holdings hurt the performance of a number of prudential funds. BoE Managed fell close to the bottom of the prudential category as its foreign holding now accounts for 21% of fund assets.
It's no coincidence that the other poor performers over the past six months, such as Standard Bank Managed Prudential, Metropolitan Prudential and FT NIB Balanced, also had a full foreign allocation.
BoE Managed fund manager Ivan Reyneke says the prudential category incorporates funds with much lower equity and much higher bond weightings. His fund has about 70% invested in local and foreign equities.
"As there was a 14% difference in performance between equities and bonds over the quarter, this was the main contributor to the difference in performance."
A few funds did well despite a high equity weighting. Oasis Balanced, for example, was second out of 51 over six months. Fund manager Adam Ebrahim says shares such as Omnia, Energy Africa and HLH all contributed to performance.
Reyneke says current bond market yields reflect a belief that the Reserve Bank is getting inflation under control "but tensions in the Middle East throw a shadow of uncertainty over the oil price and therefore inflation".
Norman McKechnie, who runs the RMB Balanced fund, a top-quartile performer over 12 months, has liquidated his local bonds entirely, but he expects another opportunity to buy bonds as he expects the R153 long bond to start yielding at least 12% again soon.
Over the past six months there has been a marked improvement in the Sanlam unit trust performance as a more disciplined process has been imposed by Steve Mills and Ralph Leib, who were charged with revitalising the range.
In the year to date 80% of the funds are in the top half, compared with 29% in 2001. Sanlam should comfortably reach its target of 60% of funds in the top half in 2002.
Even such long-term underperformers as Prime Growth and General are now in the middle of their categories.
Mills says Sanlam Investment Management has also recognised that unit trust investors have shorter time horizons than pension fund investors. Sanlam has developed tools that help it to measure market sentiment, and the house will limit its bets against this.
There has also been a turnaround at the Old Mutual Top Companies fund, which has been an underperformer for several years. It has benefited from some aggressive bets against underperforming large caps. Fund manager Godwin Sepeng had no Richemont on June 30, though he nibbled the share at lower levels during the quarter.
This fund has not previously been allowed to invest in gold, but the mandate was changed and it benefited from investments in ARMgold and Gold Fields, though Sepeng has reduced the resources weighting overall.
The public has often found it difficult to differentiate this fund from the flagship Investors' fund, but it has now been clearly positioned as a more aggressive equity fund, which invests in no more than 30 shares. Unlike Investors' it will exclude entirely large caps that Sepeng does not favour, among them SABMiller and Sanlam. It will also take more aggressive midcap bets - Uniserv, for example, represents 3% of the fund.
But Old Mutual Top Companies would not be on a short list of the top general equity funds. Oasis, Allan Gray and African Harvest Rainmaker have been the most consistent performers, with Sage Fund, also run by Biccard, the pick of the long-established funds.
