Financial Mail - Investors Monthly - - Contents - STEPHEN CRANSTON

Pru­den­tial In­fla­tion Plus Fund, Stan­lib Bal­anced Cau­tious Fund, SIM In­fla­tion Plus Fund, Old Mu­tual Stable Growth Fund, PSG Stable Fund

The Morn­ingstar data­base con­tains 220 funds in the cau­tious al­lo­ca­tion cat­e­gory. This type of fund is de­signed for in­vestors who want a broad di­ver­sity of as­set classes in a “one-stop” shop. The funds can in­vest up to 40% in eq­ui­ties, and all the ma­jor ones in the sec­tor have the dis­cre­tion to take up to 30% off­shore.

In the risk spec­trum it sits be­tween vari­able fixed in­come and bal­anced funds. It makes up 12% of the unit trust sec­tor. But over the past 12 months it has come un­der pres­sure, with net out­flows of R6bn.

In­vestors ex­pect some ex­tra re­turn from in­vest­ing in a cau­tious al­lo­ca­tion fund, rather than stay­ing in the cash or fixed-in­come sec­tor. But over the past three years that ex­tra re­turn has not ma­te­ri­alised. All the as­set classes in which th­ese funds in­vest have pro­duced medi­ocre re­turns.

David Knee, chief in­vest­ment of­fi­cer of Pru­den­tial, says it would be the wrong re­ac­tion to exit th­ese funds im­pul­sively and move into cash.

Knee says no­body can pre­dict when a re­cov­ery will take place, but it is likely to be lumpy so there won’t be time to come back in and en­joy the full ride. There’s no bet­ter op­por­tu­nity than now to in­vest monthly into th­ese funds.

And many more in­fla­tion hedges are likely to be avail­able in pub­lic mar­kets soon, such as in­fra­struc­ture funds, as well as a much more so­phis­ti­cated cor­po­rate bond mar­ket.

There is a lot more flex­i­bil­ity avail­able to th­ese funds now that up to 30% can be in­vested in­ter­na­tion­ally, plus a fur­ther 10% in the rest of Africa. There isn’t al­ways go­ing to be a good match be­tween li­a­bil­i­ties linked to SA in­fla­tion and hard cur­rency as­sets, but Knee says that, in the long run, off­shore as­sets are a use­ful way to pre­serve cap­i­tal, given the longterm tra­jec­tory of the rand.

The funds in this sec­tor are all from es­tab­lished houses, but we have left out two of the largest funds, Al­lan Gray Stable and Corona­tion Bal­anced De­fen­sive, which have fea­tured in ear­lier is­sues. In any case, th­ese funds have be­come the

There is a lot more flex­i­bil­ity avail­able to th­ese funds now that up to 30% can be in­vested in­ter­na­tion­ally, plus a fur­ther 10% in the rest of Africa

de­fault op­tions for the less in­dus­tri­ous fi­nan­cial ad­vis­ers, who need to look more broadly at the mar­ket.

The sec­ond-largest, Pru­den­tial In­fla­tion Plus, has been in­cluded as it took a pioneer­ing ap­proach to dy­namic as­set al­lo­ca­tion back in 2001, when the ortho­dox wis­dom favoured a fixed-al­lo­ca­tion ap­proach. The only fund that needs at­ten­tion out of the five is Stan­lib Bal­anced Cau­tious, which has un­der­per­formed in the face of con­tin­ual re­struc­tur­ing and some poor lead­er­ship. But it has strong dis­tri­bu­tion sup­port through Stan­dard Bank, and some clever minds are do­ing their best to re­vive this fund and its man­ager.

There are some in­ter­est­ing con­trasts be­tween the funds in this cat­e­gory. Both PSG Stable and Old Mu­tual Stable Growth are well man­aged and de­serve a higher share of the fi­nan­cial ad­vis­ers’ pie; PSG Stable is ahead, but in­vest­ing in ei­ther or choos­ing their sis­ter bal­anced funds would be a good de­ci­sion for the con­ser­va­tive in­vestor for the longer term.

Th­ese funds are to some ex­tent run as di­luted bal­anced funds, with ex­tra cash and bonds. SIM In­fla­tion Plus, like its Pru­den­tial name­sake, has an more aca­demic ap­proach and is less pre­dictable.

Those peo­ple who stayed away from SIM In­fla­tion Plus af­ter its former man­ager, Philip Lieben­berg, moved to Abax, can get back into the wa­ter. The cur­rent man­ager, Natasha Nars­ingh, might be a re­treaded min­ing an­a­lyst but she’s fiercely clever and fully un­der­stands the se­ri­ous re­spon­si­bil­i­ties of run­ning a low-risk fund.

Natasha Nars­ingh

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