For the third quarter of this year, property outperformed the other asset classes substantially, continuing the trend of the last few years.

According to RisCUpdate, a quarterly market overview from investment consultant and analytics provider RisCura, for the 3 months to end September property returned 10.98%.  However, for the 12 months to end September it returned over 37%.  In contrast, the ALSI produced 24.43%, bonds returned just under 17%, while cash returned just 5.61% over the same period.  And for the three years to end September, property produced a massive cumulative return of 94%. 

However, property was the worst performing asset class in the month of September, producing a return of only 3.5%. “Significant headwinds could potentially impact property’s performance going forward,” says Claire Rentzke, Senior Consultant at RisCura Consulting. “Property has already run very hard and a reduced outlook for economic growth coupled with further escalations in rates and electricity prices could have an impact on performance of the sector going forward.” 

With consumers facing mounting financial pressures, the retail sector in particular could come under pressure, and the commercial sector could also be impacted if companies face further economic difficulties.  “Companies may downgrade from a great office space to something more affordable, and a rise in vacancies could also ensue so there is no certainty that property will continue to be the best performing asset class.”

Foreign bonds have been volatile, though surprisingly buoyant, producing a return of 8.22% for the year to end September.  “At face value given the concerns around European and the US economy, most people wouldn’t want to buy European or US bonds, but their performances have actually held up due to quantitative easing in the US and the fact that central banks have kept demand for bonds strong.”

SA bonds have also performed better than expected.  Looking at the figures for the year to date, the ALBI has returned just over 13% compared to the ALSI’s 14.81%.  “You’d expect equity to perform much better than bonds in the long run, but the return for the bond market has been very strong, primarily driven by the large number of foreign investors.”

Rentzke says SA has been included in the world bond index which has helped to draw investment flows. “All those funds that are passive index trackers will be required to hold those bonds.”  There has also been a search for yield and many other bonds around the world are yielding almost non-existent or negative returns.

“However, if international investors decide that South Africa is too risky, and the returns they’re getting don’t justify the risk, they may well disinvest.” 

Looking at equity sectors, the substantial disparity in the equity market continued, with a 30% difference in performance between financials, industrials and property on the one hand and resources on the other. For the third quarter, industrial metals and mining was the worst performer, down almost 10%. This has led to significant under performance by many asset managers because of their value bias and thus their heavy concentration in resources. However, if we consider the market holistically then our markets look fairly fully priced. Where they can, managers are investing offshore, finding much better value there than in the South African market.

Automobiles and parts was the best performing sector, producing a return of 20% for the quarter. Other strong performers were media, with a return of 18.69%, non-life insurance with a return of 16.83% and mobile telecommunications, which returned 14.96%.

On the bond market, bonds in the middle maturity band of 7-12 years have produced the strongest return, followed by those with a maturity of over 12 years. 

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