The South African stock market has performed poorly since early 2015, but this has been concealed by the performance of Naspers and SABMiller, according to Geoff Blount, Managing Director of BayHill Capital.

Despite the recent rally, in the 12 months to the end of February 2016, the JSE All Share Index (ALSI) lost 3.9%.

“However, if we were to strip out SABMiller and Naspers from the ALSI performance, the rest of the aggregated market was actually down nearly 11% over the 12 months to end February 2016,” said Blount.

These two shares collectively make up about 25% of the index, and were up 26% over the same period.

“Their performance has masked the severe bear market that the rest of the market is in. The performance of the two since August 2015 has been dramatic with them rising by more than 38% in the last four months of 2015,” he said.

Blount said that with high market caps and a heavy weighting in the index, they have concealed the underlying trend in the ALSI: “No doubt the mood at the JSE would be much glummer if we were to recognise the losses.”

Both Naspers and SABMiller can be regarded as somewhat special situation, according to Blout.

Naspers owns 34% of Tencent Holdings in China, whereas SABMiller is the subject of a R1.4trn takeover bid by Anheuser-Busch InBev, the world's biggest brewer, which provides an underpin to the share price: the price is 46% above SABMiller’s closing value on 15 September 2015.

“We did the same calculation over the three years to February 2016 and we found that Naspers and SABMiller rose 156% over that period, dramatically boosting the JSE ALSI. For the 36 months, the total ALSI was up 36%, but stripped of the two high flyers, the ALSI would have shown a very modest 14% return, or an annualized return of just over 4.5%,” he said.

“It is no wonder that active managers have struggled to beat the index over the last few years. Very few of them own the index weight in Naspers and SABMiller (and many are legally not allowed to given Unit Trust and Pension regulations), and so by definition will lag the index,” concluded Blount.

A member of the Peregrine Group, BayHill Capital is a niche investment company based in South Africa that offers portfolios for private clients which enables the firm to build unique and exciting client offerings.