FUND RE­VIEWS

Financial Mail - Investors Monthly - - Contents - STEPHEN CRANSTON

Coro­na­tion Bal­anced Plus A, Investec Op­por­tu­nity A, Allan Gray Bal­anced Fund, Pru­den­tial Bal­anced Fund, Fo­ord Bal­anced Fund

High-eq­uity funds may in­vest up to 75% of their as­sets in shares, whether for­eign or do­mes­tic. These funds are sub­ject to Reg­u­la­tion 28 of the Pen­sion Funds Act, which means that they are suit­able for in­vest­ment that is de­signed to lead to a cap­i­tal sum at re­tire­ment.

If you are look­ing for a sin­gle fund in which to in­vest your re­tire­ment an­nu­ity, the high-eq­uity cat­e­gory is the place to look. There are 155 funds in the cat­e­gory, but it is dom­i­nated by the five funds fea­tured here: the R100bn-plus Allan Gray Bal­anced, the R84bn Coro­na­tion Bal­anced, the R48bn Fo­ord Bal­anced, the R37bn Investec Op­por­tu­nity and the R12bn Pru­den­tial Bal­anced.

The life of­fices have re­spectable bal­anced funds, as high-eq­uity funds are more com­monly known. Stan­lib, the fund man­ager owned by Lib­erty Life, has five funds in the cat­e­gory, sadly all be­low av­er­age over the past year. SIM Bal­anced is also be­low av­er­age; 114 out of 155. Ned­group is the bot­tom per­former in the cat­e­gory, as its Ned­group Man­aged Fund, run by deep-value man­ager RECM, has lost 16% over the past year.

Of the large life of­fice-owned funds, Old Mu­tual Bal­anced is the best, with a re­spectable 9% re­turn and in the top third of funds. It is ahead of sev­eral of the big five funds favoured by in­de­pen­dent fi­nan­cial ad­vis­ers over a year.

Allan Gray Bal­anced and Investec Op­por­tu­nity are in the fourth quar­tile, Coro­na­tion Bal­anced Plus is right on the me­dian line, Fo­ord Bal­anced is marginally above me­dian and only Pru­den­tial is ahead of Old Mu­tual. Of course, these are not funds to pick and choose on the ba­sis of a one-year per­for­mance.

It is im­por­tant to make a qual­i­ta­tive anal­y­sis of the teams that will be run­ning the fund you choose. These funds can­not be run by a one-man band, as they re­quire ex­per­tise in lo­cal eq­ui­ties, for­eign eq­ui­ties, global and lo­cal bonds, prop­erty and, ul­ti­mately, as­set al­lo­ca­tion. Re­search shows that up to 90% of the dif­fer­ence in re­turns be­tween funds can be at­trib­uted to as­set al­lo­ca­tion.

Pru­den­tial has a ca­pa­bil­ity to of­fer a tac­ti­cal as­set al­lo­ca­tion (TAA) over­lay for pen­sion funds. It has gone a long way to­wards mak­ing TAA re­spectable and dif­fer­en­ti­at­ing it from the more spec­u­la­tive ac­tiv­ity of mar­ket tim­ing. It is cer­tainly in your in­ter­est as an in­vestor to leave the as­set al­lo­ca­tion to the as­set man­ager rather than to a fi­nan­cial ad­viser, a con­sul­tant or a mul­ti­man­ager.

A few years ago the fash­ion was to buy build­ing-block funds — a prop­erty fund, a fi­nan­cial fund, a bond and so forth. Then it be­came ac­cepted that putting the as­sets to­gether was the most im­por­tant task and could not be done ei­ther on a static ba­sis (such as 60% eq­uity, 40% bonds) or by a mul­ti­man­ager in ac­cor­dance with some ac­tu­ar­i­ally-based process.

A mul­ti­man­aged bal­anced fund isn’t nec­es­sar­ily a bad thing. The 27four As­set Se­lect fund is in the top quar­tile of funds over three years, and the Syg­nia Skele­ton Bal­anced Fund, which in­vests in a range of in­dex funds, is a few ranks above that, with a 9,5% re­turn over one year.

But if you in­vest through an ad­viser the chances are that he will rec­om­mend that you in­vest in one of the five funds be­low. They are ac­ces­si­ble, with min­i­mum debit or­ders of R500/month. If you in­vest this through a re­tire­ment an­nu­ity, this con­tri­bu­tion is tax de­ductible — though you won’t be able to touch it un­til you reach age 55.

Each of these funds has a mar­ketable pedi­gree. Investec Op­por­tu­nity started in 1997 as a flex­i­ble fund run by Piet Viljoen, with a def­i­nite value bias. But when Viljoen left in 2003 to form RECM, his re­place­ment, Clyde Ros­souw, who ran the Investec Growth fund, moved the fund in the di­rec­tion of what is now known as “qual­ity”. Re­mem­ber that there is no Investec house view, so if you are look­ing for a fund to track Investec’s ex­cel­lent in­sti­tu­tional per­for­mance (as shown in the Large Man­ager Watch) the near­est proxy is the Dis­cov­ery Bal­anced Fund, run by Chris Fre­und.

The other four funds re­li­giously fol­low the house view un­der the con­straints of Reg­u­la­tion 28, which, as well as the 75% limit on eq­ui­ties, has a 25% limit on off­shore as­sets.

All five funds have in­ter­na­tional in­vest­ment ca­pa­bil­ity in-house. The best-en­dowed is Investec, with a full of­fice in Lon­don that man­ages more than half the R2,2 tril­lion it man­ages. Allan Gray him­self went off to start Or­bis in 1988, and the Or­bis Eq­uity Fund has an ex­cel­lent track record.

Pru­den­tial’s sis­ter com­pany, M&G, is one of the largest as­set man­agers in Europe, though un­like its com­peti­tors, Pru­den­tial will also hire ex­ter­nal man­agers to help with its port­fo­lio.

Coro­na­tion and Fo­ord use a com­bi­na­tion of in-house skills in Cape Town and ex­ter­nal of­fices. Fo­ord has set up shop in Sin­ga­pore, though Dave Fo­ord him­self ul­ti­mately man­ages the Fo­ord In­ter­na­tional Fund.

Coro­na­tion has out­sourced its in­ter­na­tional as­sets through a mul­ti­man­ager fund run from Lon­don. But it set up ca­pa­bil­ity in Cape Town to run an Africa fund and an emerg­ing mar­kets fund. It now has a de­vel­oped mar­ket eq­uity fund, Global Se­lect.

High-eq­uity funds are suit­able for in­vest­ment that is de­signed to lead to a cap­i­tal sum at re­tire­ment

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