The second quarter of 2020 saw further extreme moves in equities. An intraday price move of 20% is a rare event, especially for a large company. In the month of January, only one of the largest 100 companies listed on our market experienced such a move; during the second quarter there were 70 such moves. For example:
- On 8 April, Sasol opened at R72 and closed slightly lower at R69. But during the day, the share traded as low as R52 and as high as R83 – an intraday move of more than 60%.
- On 14 April, Redefine opened at R2.70, traded as low as R2.50, as high as R3.50, and closed at R3.10 – a 41% intraday move.
March was even more extreme: There were 238 intraday moves of more than 20%.
An investor with perfect foresight could have made a 100% return on 11 of the 100 largest shares during the quarter, and a 50% return on 40 of them. For example:
- You could have bought Anglo American Platinum for R690 per share on 1 April, and sold it for R1 190 on 2 June, for a return of 72%.
- You could have bought Nedbank for R79 on 3 April and sold it for R128 on 8 June, for a return of 62%.
The FTSE/JSE All Share Index (ALSI) gave a total return of 23% for the quarter. However, this return came from a small group of stocks. Each of the following groups contributed about 5% to the 23% total return:
- Naspers and Prosus
- BHP and Anglo American
- Miners of precious metals
Many domestic stocks are still at very depressed levels, even though they have bounced during the quarter. 50 of the 100 largest shares are more than 50% off their all-time highs. Woolworths, Foschini and Truworths are all 70% off their highs, as is Netcare. Half of companies are more than 20% off their levels from the start of the year, including Nedbank (-52%), Redefine (-56%), and PEP (-39%).
Of course, the economic crisis brought about by COVID-19 and the global lockdowns is far from over. We are concerned about the high level of corporate and government debt – not only in South Africa, but also in developed countries like the US. Ever-higher bailouts by central banks carry with them the risk that money starts losing its meaning, and to the cautious (paranoid?) investor there are already signs that this is happening. Look, for instance, at the prices of collectable sneakers, cryptocurrencies, and certain forms of art.
The most important determinant of investment success is the price you pay for an asset, and valuations for many high-quality companies are the cheapest they have been in decades. We are expecting good returns over the long term from the holdings in the Fund.
The Allan Gray Equity Fund returned 19% for the quarter, compared with the benchmark’s return of 21%. During the quarter we bought Capitec and Shoprite, and sold Aspen and Investec. We also lightened our Sasol position after it rallied. The foreign portion of the Fund contributed positively to performance.