Stick­ing to its plans

PPS has con­tin­ued to hold on to its longterm strat­egy de­spite short-term mar­ket volatil­ity, writes Jo­hann Barnard

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

With funds now show­ing a 10year track record, PPS In­vest­ments can look back with a great de­gree of sat­is­fac­tion and the sense that the funds and cho­sen in­vest­ment strate­gies are de­liv­er­ing value to its mem­bers, says ex­ec­u­tive of re­search and in­vest­ments David Crosoer.

The com­pany is a mu­tual or­gan­i­sa­tion and the only fi­nan­cial ser­vices provider in SA fo­cused ex­clu­sively on grad­u­ate pro­fes­sion­als.

Its of­fer­ings in­clude tai­lor­made in­sur­ance, health-care so­lu­tions and in­vest­ment funds.

“Start­ing a busi­ness in mid2007, just be­fore the global fi­nan­cial cri­sis and when eq­uity mar­kets looked rel­a­tively ex­pen­sive, was un­doubt­edly chal­leng­ing.

“For­tu­nately, we launched with far­sighted share­hold­ers who shared our long-term per­spec­tive,” Crosoer says.

In the pe­riod since the world mar­kets were shaken to their core, PPS In­vest­ments has grown its funds to in­clude three in­fla­tion-tar­get­ing unit trusts, an in­dex tracker fund and five funds that aim to out­per­form rel­a­tive to the peer or mar­ket bench­mark.

Crosoer says that while the funds have grown in num­ber and as­sets un­der man­age­ment, the chal­lenge of manag­ing and grow­ing as­sets has not di­min­ished. “Our most im­me­di­ate chal­lenge after launch­ing was be­ing will­ing to hold eq­ui­ties in late 2008 and into 2009 de­spite the un­cer­tainty around mar­kets. To­day the [most dif­fi­cult as­pect] is ar­guably still be­ing will­ing to hold eq­ui­ties de­spite a lengthy bull mar­ket.

“The big­gest chal­lenge we have faced has prob­a­bly been to de­liver con­sis­tent re­turns in our higher-risk funds de­spite an SA eq­uity mar­ket that has re­mained con­cen­trated, while the global mar­ket has been boosted by ex­cep­tion­ally loose mon­e­tary pol­icy.

“Mit­i­gat­ing th­ese risks has not al­ways been easy. We’ve stuck with man­agers that haven’t held Naspers, for ex­am­ple, de­spite the im­pact of this on short-term per­for­mance. We have also not held global bonds in our port­fo­lios for more than a decade, de­spite the po­ten­tially neg­a­tive ef­fect on short-term per­for­mance, be­cause long term we think it [they] will lose money.”

With to­tal as­sets of just less than R29bn un­der man­age­ment, the PPS In­vest­ments team car­ries great re­spon­si­bil­ity. Its mul­ti­man­ager ap­proach has proven suc­cess­ful in ex­tract­ing the best re­sults from its cho­sen as­set man­agers.

“The key to this strat­egy has been the ac­knowl­edge­ment that pro­tect­ing as­sets is the most pru­dent ap­proach.

“This has meant that we’ve done things that, at the time, might have seemed odd — such as hold­ing eq­ui­ties in early 2008 or hold­ing onto an un­fash­ion­able man­ager be­cause we bought into its process,” Crosoer says.

“Th­ese de­ci­sions, how­ever, have not so much re­flected greater fore­sight as per­haps greater for­ti­tude.

“We knew that to have any chance of con­sis­tently achiev­ing our ob­jec­tives we would need to stick to our in­vest­ment process.”

This process in­volves tak­ing a sober view of the need for growth over the long term. Crosoer says fund com­po­si­tion has de­manded the ap­pro­pri­ate al­lo­ca­tion to eq­uity as­sets to de­liver growth, with­out un­due ex­po­sure to place gains at risk.

“Based purely on val­u­a­tions, ex­pected SA and global eq­uity mar­ket re­turns look rel­a­tively medi­ocre for the medium term. This should not be too sur­pris­ing, as mar­kets have ral­lied con­sid­er­ably since the global fi­nan­cial cri­sis and ex­cep­tion­ally loose mon­e­tary pol­icy is be­ing with­drawn.

“We know, how­ever, that val­u­a­tions can be a poor short­term pred­i­ca­tor of eq­uity mar­ket re­turns.

“Our in­vest­ment process is de­lib­er­ately con­structed not to try to time the mar­ket, but rather to re­main suf­fi­ciently di­ver­si­fied across man­agers and as­set classes to with­stand mar­ket volatil­ity.” And volatil­ity is one as­pect of lo­cal and global mar­kets in­vestors have had to en­dure by the bucket loads.

Crosoer ac­knowl­edges that stay­ing the course in the face of such swings is never easy, but en­cour­ages in­vestors to avoid the urge to bail out of an in­vest­ment plan.

He says fi­nan­cial ad­vis­ers have a big role to play in this re­spect to guide in­vestors through tur­bu­lent times and re­in­force the im­por­tance of stick­ing to long-term goals de­spite the short-term noise.

Pic­ture: 123RF — ALEXMIT

David Crosoer ... for­ti­tude

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