ASISA category return dispersion report

As the market comes to grips with a “new normal” for volatility levels it is interesting to note the degree to which these volatility levels have changed over the past year. The following report reviews the dispersion of returns (indexed to 100) of various ASISA fund categories as well as the major asset classes available to South African investors.

The returns are analysed using a box and whisker chart with the length of the whisker measuring the return dispersion for the month measured. A green box means that a particular month experienced a positive return whereas a red box means that a particular month experienced a negative return.

Figure 1: ASISA category return dispersion indexed to 100 (1 April 2019 – 31 March 2020)

Source: Morningstar

Figure 2: Asset class return dispersion indexed to 100 (1 April 2019 – 31 March 2020)

Source: Morningstar Index Proxies: SA Equity: FTSE/JSE All Share Index; Commodities: Bloomberg Commodity Index (ZAR); SA Bonds: JSE All Bond Index; SA Property: FTSE/JSE Property Index; Global Equities: MSCI World Index (ZAR); SA Cash: STeFI Call Deposit

The above figures confirm that, apart from South African Cash no other asset class escaped the recent increase in market volatility. Compared to each asset’s historical return series, March 2020 was particularly volatile.

Apart from South African – Multi Asset – Income, all other ASISA categories measured ranged between roughly 10 and 25 points. Compared to each individual asset class, excluding South African Cash, all ranged between roughly 10 and 30 points.

South African Property was a noteworthy exception, ranging almost 40 points. A possible reason for this outlier may be the levered nature of the South African listed property sector. High debt levels may have had investors concerned as the economy entered a shutdown.

Future dispersions will be dependent on two broad factors: restored economic activity and the containment of Covid-19. Unfortunately, the true impact of Covid-19 and its knock-on effects on the global economy will only truly be known after the fact.

Return dispersion and the Global Financial Crisis

Having experienced a noteworthy increase in volatility, it is important to measure the significance thereof by looking back in history. The most recent market crisis that saw a meaningful uptake in volatility was the Global Financial Crisis of 2007-2008.

Figures 3 and 4 compare the largest spread between the highest and lowest point within a given month during the Global Financial Crisis with that experienced during the ongoing Covid-19 pandemic.

Figure 3: ASISA category return dispersion comparison

Figure 4: Asset class return dispersion comparison

From these figures it is clear that the recent volatility is unprecedented. All ASISA Categories measured saw a significant increase in volatility. Apart from commodities and to a lesser extent cash, all major asset classes saw the same uptake in volatility.

More importantly, the South African Bonds category, which historically held up in the event of an increase in equity market volatility, also saw a drastic increase of more than 10 points. This is mainly due to the difference in country-specific risks between 2007-2008 and now. Since the global financial crisis, South Africa’s fiscal position has deteriorated rapidly with debt to GDP more than doubling (2008: 27.8%; 2019: 62.2% (Trading Economics)). The additional risk of Covid-19 and its impact on the South African economy, together with a downgrade in credit rating by Moody’s, led to already cautious investors selling off local government debt.