AS­SET CLASS VIEWS

Finweek English Edition - - MUTLI-ASSET INVETSMENTS -

Pru­den­tial, he points out, is to main­tain its port­fo­lio po­si­tion­ing as it was be­fore the rate hike. “We are con­fi­dent that our po­si­tion­ing and in­di­vid­ual hold­ings in our real re­turn [inf la­tion tar­geted] and bal­anced portfolios are such that these funds will con­tinue to deliver real re­turns above cash. Cash will still pro­duce very low real re­turns over the next two to three years.

“How­ever, bond re­turns will re­main un­der pres­sure from global con­di­tions in the short term, so those in­vestors con­cerned about re­turns over the next six to 12 months would be best placed in cash or near-cash as­sets.” THESE ARE KINS­LEY’S VIEWS ON THE MA­JOR AS­SET CLASSES: Off­shore eq­ui­ties: Over­weight. De­vel­oped mar­ket eq­ui­ties of­fer the best value, with a few emerg­ing mar­ket eq­ui­ties also look­ing at­trac­tive. How­ever, sen­ti­ment is still neg­a­tive on the lat­ter as in­vestors worry about longer-term growth prospects.

Off­shore bonds: Pru­den­tial dif­fers from some of its com­peti­tors in this area. While it has no ex­po­sure to sov­er­eign bonds, on the cor­po­rate and high-yield bond side it’s over­weight in t e r ms o f its com­peti­tors but un­der­weight in terms of its own strate­gic bench­mark. In­ter­na­tional cor­po­rate bonds of­fer a good yield spread and are an ex­cel­lent di­ver­si­fi­ca­tion as­set class.

South African eq­ui­ties: On value met­rics such as earn­ings yield and price to book, it is on the slightly ex­pen­sive side of fair value and priced to deliver a real re­turn of around 7% a year on a threeto f ive-year view. The real chal­lenge is that there are some mas­sively ex­pen­sive in­dus­tri­als and some very cheap re­source shares. The chal­lenge to as­set man­agers is to know when to switch, and then to know which counters make the most in­vest­ment sense when be­gin­ning that process.

Do­mes­tic listed property: Broadly neu­tral. The uni­verse of South African REITs (Real Es­tate In­vest­ment Trust) cur­rently of­fers a rel­a­tively at­trac­tive for­ward dis­tri­bu­tion yield of 8.2%, and com­bined with a ro­bust dis­tri­bu­tion growth, is price to deliver a real re­turn of over 5% a year over the next five years. This makes it likely to out­per­form both bonds and cash over the medium term.

Do­mes­tic bonds: Pru­den­tial is over­weight bonds rel­a­tive to its peers and its own strate­gic al­lo­ca­tion. It is over­weight cor­po­rate bonds on the shorter end of the curve, has lit­tle ex­po­sure in the mid­dle, and is over­weight longer-dated bonds. It be­lieves that cor­po­rate bonds of­fer good yield pickup and lit­tle du­ra­tion risk, and is well dis­posed to long bonds which give 1-1.5% ex­tra yield rel­a­tive to the mid­dle of the curve at rea­son­able risk.

Pru­den­tial was re­cently named by Morn­ingstar as one of the coun­try’s top three large as­set man­agers. Its Inf la­tion Plus Fund and Global High Yield Bond Fund of Funds also won Rag­ing Bull cer­tifi­cates for top per­for­mance in the Global Bond and Multi-As­set Low Eq­uity cat­e­gories to 31 De­cem­ber 2013.

John Kins­ley

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