Portfolio Manager

Business Development & Marketing

March 2021

With all the upheaval and change that the Corona-coaster has brought about, you may be relieved to know that one thing hasn’t changed – the effectiveness of indexation. Index trackers just keep chugging along like Thomas the Tank Engine, delivering transparent returns, tracking market performance, and, as it turns out, outperforming many of their active peers.

Over the last year, equities have delivered an exhilarating ride as you can see in the graph below:

• In the first quarter of 2020, the market declined by 33%; front row seat in the roller coaster ride with most of the plummet happening in less than one month.
• In the period of 17 February – 19 March 2020 the market fell -34.3%.
• From the beginning of March 2020 to the end of February 2021, the JSE/ALSI delivered 33.2%. This was not, however, delivered in a straight line.
• From 19 March 2020 until the 6 of August 2020, the market rose 53.39%.
• This was followed by another decline of 9.61%.
• And then followed a rise of 28.31%.

If you also take the various market sectors into account, the scenario was further obfuscated. As illustrated in the graph below, General Mining (blue line) has outperformed massively over this period while Consumer Services (red line) still needs to recoup losses; the latter being the sector considered an essential service! You’ll also notice the gold seesaw (black line); it has halved in value since the end of July 2020.

Selecting which managers will outperform when, and for how long is enormously challenging. In our recent article, Impassive Investing, we discuss the challenge of making this decision based on past performance. Many investors remain sceptical of indexation with naysayers constantly raising caveats – not in a bull market/not in a bear market/not with a concentrated stock holding/not when the moon is full – but indexation just chugs merrily along regardless.

There will always be active managers that out-perform the index; there must be, we need there to be. However, the graph below shows the percentage of funds outperformed by the Gryphon All Share Tracker Fund on a 5-year rolling basis net of fees, starting in 2011.

In conclusion, an extract from the 2017 Berkshire Hathaway Annual Report. Commenting on lessons learned and index tracking, Warren Buffet said,

“Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities when offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.”