Had you invested an equal amount in the shares of each of the 2003 Top Companies award winners, you would have earned almost 32% on your money - slightly more than the all share index. If you had weighted your investment in favour of companies in the top half of the list, you would have earned more.
Not bad when money in a bank earns you less than 10% - the least in more than 20 years - and is taxed. Investing in shares has begun to make a lot more sense since the collapse in equity markets around the world in 2001. The subsequent market correction has positioned equities as a much more realistic investment class.
Retail investors still feel the scars of the poor market performance of the past two years and have been slow to return to the JSE. But the performance of last year's top 20 does show that rewards are there for those willing to take the risk - and shrewd enough to get their portfolio suitably balanced.
The 2003 Top Companies winners (see table) represented a range of industries, though financial companies were underrepresented. That was somewhat negative for the overall performance of the winners relative to the rest of the market, because financials actually had a great year on the JSE. African Bank Investments, the only financial company that made the 2003 top 20, was one of the best (79% internal rate of return, or IRR).
Rand strength had a clear negative impact on our list of winners. Resources companies Impala (first), AngloPlat (fifth) and Harmony (seventh) had a difficult year. But Implats still delivered a respectable 27%.
Two of the top nonmining exporters on the 2003 list - Sappi and Delta - had poor years, also victims of the strengthening rand.
Broadly speaking, the top performers among the 2003 winners were in retail and information & communications technology - a theme for the market as a whole. The best performer over the last year was MTN, while Altech and Reunert, both electronics producers, pulled up the average. (Reunert came close to the winners' list this year, but just missed it because of a higher base for calculating average growth in earnings per share and IRR over five years. This "base effect" is most often the reason some good performers who made last year's list did not make this year's.)
Retail was also strong, with Pick 'n Pay and Mr Price both beating the average a year on. The sector had a great year, thanks to dropping interest rates and buoyant consumer confidence. But Mr Price exited the top 20, its IRR and return on equity figures lower because of the higher base for a five-year measurement.
Looking beyond our list of winners to the JSE as a whole, Datatec, which has been through lows and highs in the past few years, was 2003's best performer among midsized companies. But it did not make it as a 2004 winner because of the inconsistency in its share price on a five-year view.
Such stocks can look like a great ride, but the risks are always higher.
The next-best performer in the R1bn-plus market-cap league was Grindrod, which has made it into the list of 2004 winners. Kagiso Media was the third-best on the JSE and also makes it. Reflecting the retail surge, fourth-best JSE performer Edcon joins Pick 'n Pay in the top 20. MTN was the fifth-best performer on the JSE in the year to March 2004.
Afrox Healthcare also stayed on the list by delivering a pumping 60% IRR. After a great year for hospital groups, Netcare joins it in the list of 2004 winners. They are not without risk - government's regulatory approach to the industry could cause some earnings damage.
The graph alongside shows an FM index for the top 20 winning companies of 2003. It shows periods of strong performance, though the top 20 closed only slightly ahead of the all share index.
We will produce a similar index for the 2004 winners and will keep you up to date on performance in the pages of the FM.
