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Thu, 01 Jul 2010 - 17:50

Just Past Half Year

Yesterday marked the end of the first half of the year. While there is no logical reason to use calendar month/quarter/year ends to measure performance periods, it does give us easily identifiable and comparable markers and periods. Caution must be taken as specific start and end dates, particularly over shorter periods, can either mask or amplify returns.

We prefer to measure asset performance over rolling periods, as this gives us a better idea of how we have performed over an entire period, not just over a discrete period.

Be that as it may, below is a table showing the performance of various asset classes (in ZAR) over various discrete periods:

The last quarter has been particularly tough for equities, both locally and abroad, with the local market producing its poorest quarterly return since the end of 2008. Over all of these measurement periods for local equities (read ALSI Total Return), only one period stands out as having produced a good inflation beating return, that being the 12 month performance.

As mentioned earlier, this can be misleading if you don't roll the number.

The ALSI return in July 2009 was 10.1%, which means that the market needs to return 10.1% this month for the 12 month return to stay at 21.8%. If we plug in a more realistic monthly return, like 1%, then the 12 month return falls to 11.7%, and if the market has another bad month (-3% return) then the 12 month return falls to 7.3%, barely above inflation. All of a sudden a 'good 12 months' can turn into a 'bad 12 months', when it is in fact just one month on either side that has affected the overall picture.

World equity, in rands, has been a terrible performer not only over the measurement periods shown above, but also over a decade or so. While this often has the effect of scaring investors off, it should do the opposite. Asset classes that have been depressed for a long time, typically perform better going forward. This isn't a failsafe method, but if you consistently follow a buy low sell high approach, over time your returns should be above average.

Investors expecting a return of 15% from equities in 2010 require a strong second half from this asset class. A total return of approximately 20% is required, growing at an average of 3% per annum. This kind of return is achievable, but these investors will more than likely end up short.

Take care,

Mike Browne info@seedinvestments.co.za www.seedinvestments.co.za 021 9144 966

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