Make sure you like the rules

I n the spectrum of multiasset funds flexible funds are often considered the most risky. Yet, paradoxically, they provide the tools that allow the fund manager to run them in a highly riskaverse way.

There are three main types of flexible funds, so the investor must be sure to be comfortable with the rules of each category. The most flexible are in the worldwide category, as they can not only go from zero to 100% equity but also move between foreign and SA assets.

But many investors are uncomfortable giving so much freedom to the fund manager.

A few funds in that category have won acclaim in the industry, such as Foord Flexible, Coronation Market Plus and Nedgroup Investments Bravata.

But it is not nearly as fiercely contested as the SA flexible category. This still has generous wiggle room to invest offshore, as 25% of assets may be in foreign assets plus a further 5% in Africa, but there is the certainty that at least 70% of assets are local.

The R60bn in domestic flexible funds is modest compared with the R430bn in high-equity funds. But domestic equity funds have almost doubled the assets of worldwide flexible funds, which run about R36bn in client funds.

We could choose only five in this month’s Investors

Monthly , but other funds, by new-generation managers, are Anchor Securities Flexible, Bateleur Flexible, Centaur Flexible, Novare Flexible and Visio Actinio. It is not an entirely consistent peer group, as it includes some protected equity funds, such as Cadiz Equity Ladder, a few flexible income funds that felt they did not get enough latitude in other categories, such as Marriott High Income, and the odd property fund looking for the ability to put 50% into cash, such as Marriott Property Equity.

And adding some grey hair to a generally youthful line-up is former Martin & Co boss Winston Floquet, who has come to specialise in flexible funds in his mature years. His Flagship Flexible Value in the domestic sector is quite low key. His multiple-award winner in the worldwide category, Flagship Worldwide Flexible, is certainly one to watch.

The most credible of the big-brand flexible funds must be Old Mutual Flexible. It is run by Peter Brooke, head of the multi-asset “boutique” at the Big Green. It is run alongside the house’s most aggressive balanced portfolio, Edge 28, once known as Pinnacle.

The five funds we have selected look promising, though only PSG Flexible has really been a strong short-term performer. The funds are not as complex as you might imagine. In theory they should contain an infinite number of moving parts. But all are equity centric, adding most value by bottomup stockpicking.

The other big decision they make is to work out how much cash to put into the portfolio. Even their moves into domestic bonds are highly selective.

PSG is the first to admit that its flexible option is in effect a diluted equity fund, which will show lower drawdowns and volatility over time. PSG hit a sweet spot in its stock selection in 2016, raising it close to the top — in fact, over one year it is third after Flagship and Element Flexible. PSG has a wellrounded, experienced team, which is also much less hidebound by bureaucracy than, say, Old Mutual.

PSG is probably further advanced in its life cycle than any of the other fund managers that are featured. On any given day, 36One might well manage more assets than PSG, though it still has quite a limited product set focused on equities. Perhaps the 36One Flexible Opportunity Fund would fit more comfortably into the aggressive bucket, rather than the flexible one. It should be seen as the best investment view of an undoubtedly talent- ed investment team, headed by Cy Jacobs, even though it has lost a star manager in Jean Pierre Verster, now at Fairtree.

Truffle has also built its reputation on its flexible fund, and picks from the full menu of asset classes more than its peers do. Its multi-asset skills are for all to see now that it runs the high-profile Nedgroup Investments Managed fund.

Laurium has only recently put its head above the parapet. Refugees from stockbroking do not always succeed on the “buy side”, but Deutsche’s Murray Winckler and Gavin Vorwerg certainly have. It has been the best-performing flexible fund over its four-year life span.

Our final fund is ClucasGray Future Titans. Its heart belongs in the mid- and small-cap sector but it prefers the more relaxed rules of the flexible funds. It is quite different from its peers, with shares such as Sirius Real Estate, Hulamin and Interwaste in its top holdings.

But it has certainly had its share of silverware, and arguably anybody looking for a mid- and small-cap fund should choose this in preference to the fuddy-duddy funds in the small-cap sector.