STEADY LOW EQ­UITY FUNDS

Financial Mail - Investors Monthly - - Front Page - STEPHEN CRANSTON

With R211bn un­der man­age­ment, the low eq­uity cat­e­gory is the fourth big­gest in the unit trust sec­tor af­ter high eq­uity funds, gen­eral eq­uity funds and money mar­ket funds.

There are some gi­ant funds such as Coro­na­tion Bal­anced De­fen­sive with more than R40bn un­der man­age­ment, Allan Gray Sta­ble with R35bn and Ned­group Sta­ble with R32bn. The Pru­den­tial In­fla­tion Plus fund has R34bn and is in the cat­e­gory but it is man­aged on an ab­so­lute re­turn ba­sis and un­like the other funds re­viewed here is not an Allan Gray Sta­ble clone.

Allan Gray Sta­ble and its most suc­cess­ful clones, Coro­na­tion and Ned­group, have be­come the de­faults for many fi­nan­cial ad­vis­ers as a low risk in­vest­ment for their clients close to or in re­tire­ment. They live up to their name of Sta­ble: in its history Ned­group Sta­ble has had a max­i­mum draw­down (loss) of 4,2% while over the same pe­riod eq­ui­ties have lost 40,4% at their worst, bonds 7,9% and even global cash has fallen 35,2%.

There has been a strong ri­valry be­tween these funds. Allan Gray Sta­ble was formed in July 2000 and proved to be ex­tremely pop­u­lar with the public. Coro­na­tion re­cruited Charles de Kock, the son of a gover­nor of the Re­serve Bank no less, from Old Mu­tual to play the role of Mr Sta­bil­ity and to be the face of its new Sta­ble fund, which it called, for fear of be­ing ac­cused of im­i­ta­tion, the Bal­anced De­fen­sive fund. De Kock was the per­fect choice for the fund, not only be­cause of his re­as­sur­ingly calm man­ner but be­cause he ran the fund ex­cep­tion­ally well. It is a first quar­tile fund over three years and com­fort­ably ahead of Allan Gray Sta­ble over 12 months.

Ned­group op­er­ates a “best of breed” model and needed to find a house to run its sta­ble fund. It was for­tu­nate to find Fo­ord As­set Man­age­ment was will­ing to run the fund. Founder Dave Fo­ord made it clear he would not run a low eq­uity fund un­der his own name. He does not be­lieve it makes sense to keep your as­sets in such a fund for the long term — a bal­anced or flex­i­ble fund is a more log­i­cal choice for the long-term view, he ar­gues.

But he has been happy to run a fund for Ned­group which has been a suc­cess for both par­ties. It is a top quar­tile fund over one and three years and has been con­ser­va­tively po­si­tioned for to­day’s choppy mar­kets.

In this month’s IM we also look at two medium-sized funds: the R9bn Investec Cau­tious Man­aged and the R8bn Stan­lib Bal­anced Cau­tious.

Investec would ar­gue that its Cau­tious Man­aged fund is not a clone of Allan Gray Sta­ble. It is mod­elled on the Investec Cau­tious Man­aged fund in the UK. The South African ver­sion was launched in April 2006, ahead of the Coro­na­tion and Ned­group clone funds. The fund was orig­i­nally run by Sam Houlie, the mav­er­ick port­fo­lio man­ager who was pre­vi­ously head of Absa’s as­set man­age­ment busi­ness.

It is now run in the ar­guably safer hands of the so-called “qual­ity” team (as op­posed to the cheap and nasty team?) of Clyde Ros­souw and Sumesh Chetty, who also run the R36bn Investec Op­por­tu­nity fund. Ros­souw’s deep ex­pe­ri­ence of eq­uity mar­kets and Chetty’s ex­pe­ri­ence as an in­vest­ment ac­tu­ary have proved to be a strong com­bi­na­tion which is above av­er­age over one and three years.

Stan­lib Bal­anced Cau­tious was the last fund through the gates, hav­ing started in De­cem­ber 2008. But as an in­stinc­tively con­ser­va­tive house (most of its as­sets are life money, af­ter all) Stan­lib should have a com­pet­i­tive prod­uct in this space.

Fund man­agers Robin Ea­gar and War­ren Buhai had a stub­bornly third quar­tile per­for­mance over three years, but over a year they are right on the me­dian. The acid test will be the rest of the year.

Ea­gar be­lieves we are in a bub­ble as the US mar­ket has reached un­sus­tain­able lev­els and the largest losses oc­cur when val­u­a­tions are high. The South African mar­ket is also trad­ing at very high lev­els rel­a­tive to history.

In the past, bonds have acted as sta­bilis­ers when eq­ui­ties fall, but there is very lit­tle scope for bonds to in­crease in value from these lev­els.

“Based on pre­vail­ing mar­ket con­di­tions we have no ev­i­dence on which to ac­cept mar­ket risk at this point, there­fore we do not take mar­ket risk.

“Num­ber one pri­or­ity is to make sure our clients have set cap­i­tal aside to take ad­van­tage of a cor­rec­tion to achieve their long-term goals.”

Sta­ble funds might have small draw­downs but they re­main a bet­ter long-term bet than money mar­ket or fixed in­come funds, with­out the threat of a per­ma­nent loss of cap­i­tal from pure eq­uity and high eq­uity funds.

The South African mar­ket is also trad­ing at very high lev­els rel­a­tive to history

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.