Medium of growth and se­cu­rity

Financial Mail - Investors Monthly - - Analysis: Unit Trusts -

Medium eq­uity is a cat­e­gory of funds with a max­i­mum eq­uity ex­po­sure of 60% and typ­i­cally, though not al­ways, at least 40% in eq­ui­ties, the max­i­mum for the low-eq­uity cat­e­gory. The medium-eq­uity cat­e­gory is quite niched, with R51bn un­der man­age­ment, com­pared with R400bn in high-eq­uity funds and R230bn in low-eq­uity funds. And 40% of this money is ac­counted for by one fund, Corona­tion Cap­i­tal Plus.

Some pen­sion funds of­fer all three cat­e­gories in their mem­ber-level in­vest­ment-choice pro­grammes. Many large fund groups do not have a sin­gle man­ager fund in the cat­e­gory, in­stead opt­ing for a mul­ti­man­ager fund. Old Mu­tual has a cou­ple of niche funds in the sec­tor, Al­baraka Bal­anced Fund and the Dynamic Floor Fund, but its main con­tender in the fi­nan­cial ad­viser mar­ket is the Old Mu­tual Mul­ti­man­agers De­fen­sive Fund of Funds. Stan­lib has the In­fla­tion Plus 3% fund in the cat­e­gory and no less than five funds of funds, in­clud­ing the medium-high eq­uity fund.

The South­ern Char­ter Bal­anced fund, man­aged by Mark Thomp­son and Ur­sula Maritz, is also in this cat­e­gory, as is the award-win­ning 27four bal­anced fund of funds. There are some bou­tique sin­gle-man­ager funds, how­ever, such as the Aeon bal­anced fund, run by former Metropoli­tan chief in­vest­ment of­fi­cer Asief Mo­hamed, and the Coun­ter­point Mod­er­ate fund, run by Steve Mills and Alex Pes­tana — two refugees from San­lam. Their old em­ployer hasn’t shown much in­ter­est in this cat­e­gory as it just has the clum­sily named San­lam Multi Man­ager Ab­so­lute So­lu­tion 5 fund in it.

Many funds in this cat­e­gory have an in­fla­tion bench­mark, such as the MiPlan in­fla­tion plus 5% and in­fla­tion plus 7% funds. Like Cap­i­tal Plus, most were orig­i­nally con­structed for the now de­funct Tar­geted and Ab­so­lute Re­turn funds cat­e­gory.

And it is true that medium-eq­uity funds pro­vide a good trade-off between cap­i­tal growth and cap­i­tal se­cu­rity. Corona­tion Cap­i­tal Plus, the big go­rilla in the sec­tor, achieved a 33,8% re­turn at its best in the year to July 2005, but in the dis­as­trous year to Oc­to­ber 2008, at the height of the fi­nan­cial cri­sis, kept the loss down to 6,2%.

Now that peo­ple are liv­ing far longer in re­tire­ment, their ad­vis­ers are strongly sug­gest­ing that for at least the first 10 years of re­tire­ment they should con­sider a medium-eq­uity fund as the heart of their liv­ing an­nu­ity in­vest­ment rather than a low-eq­uity fund and cer­tainly in pref­er­ence to a fixed-in­ter­est fund. They should con­sider the five funds se­lected in this is­sue.

It is a mix of funds from three es­tab­lished houses, Corona­tion, Fo­ord and Abax (which man­ages the Ned­group Op­por­tu­nity fund).

There is one niche man­ager, Sas­fin, and Absa, while too large to be niche, is a work in progress, as it in­tro­duces a de­cen­tralised fran­chise sys­tem. Its bal­anced fund, pre­vi­ously run by Er­rol Shear with re­spectable re­turns, has moved to the duo of Kurt Benn and Greg Ket­tles. Absa is also bed­ding down its re­la­tion­ship with Schroders. Bal­anced and other Absa funds have ac­cess to two Schroders eq­uity funds, the Core Eq­uity fund and the much more con­cen­trated Global Re­cov­ery fund (which is sold in SA as the Global Value fund).

Corona­tion has seen a tran­si­tion at Cap­i­tal Plus from the orig­i­nal fund man­ager Louis Stassen to Charles de Kock. De Kock has a re­as­sur­ingly con­ser­va­tive ap­proach to in­vest­ment man­age­ment and has proved to be well suited to the dual man­date of the fund, which com­bines growth with cap­i­tal preser­va­tion. Corona­tion has re­cently re­moved per­for­mance fees from the fund in re­ac­tion to client de­mand.

Fo­ord Con­ser­va­tive is a slightly mis­lead­ing name, as “con­ser­va­tive” is usu­ally used in the low-eq­uity mar­ket. But founder Dave Fo­ord be­lieves this is the most con­ser­va­tive fund that is ap­pro­pri­ate for long-term in­vest­ment. Iron­i­cally, though he man­ages the Ned­group Stable fund, he does not con­sider this to be the right in­vest­ment for the long term.

Fo­ord is not a named port­fo­lio man­ager on the Con­ser­va­tive fund, which is run by Daryll Owen and Dane Schrauwen. In fact, more re­spon­si­bil­ity is be­ing handed over to the team as Fo­ord spends more time with the global eq­uity team in Sin­ga­pore and on the ocean waves in his yacht.

When Ned­group In­vest­ments Op­por­tu­nity Fund was started in 2011 it was a fur­ther ex­ten­sion of the re­la­tion­ship between Abax and Ned­group. Abax also man­ages the Rain­maker and En­trepreneur funds for Ned­group, and Op­por­tu­nity gave them the chance to show off their as­set al­lo­ca­tion skills. Fund man­ager Omri Thomas helped build a cul­ture of ab­so­lute re­turns and cap­i­tal preser­va­tion at San­lam In­vest­ment Man­age­ment and has achieved a 14,5% an­nual re­turn since in­cep­tion, com­pared with 10.9% from the bench­mark of in­fla­tion plus 5%.

Sas­fin MET Bal­anced has less than R200m un­der man­age­ment, but it is small enough to take stakes in small caps or small lines of credit, and they can make a dif­fer­ence.

Medium-eq­uity funds pro­vide a good trade-off between cap­i­tal growth and cap­i­tal se­cu­rity

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