Risk

Finweek English Edition - - INVESTMENT -

One of the main rea­sons that the fund is able to out­per­form a riskier in­vest­ment such as the Alsi is that it is bet­ter able to pro­tect in­vestors against downside risk. This is clear dur­ing the fi­nan­cial cri­sis where the fund falls by a lot less than the mar­ket, and as a re­sult is able to re­cover losses faster. The math­e­mat­ics of re­cov­ery from a loss is of­ten not well un­der­stood by in­vestors. If an in­vest­ment loses 20% it has to do 25% to get back to zero. A 50% loss re­quires a 100% re­turn to re­cover ini­tial cap­i­tal. That is the main rea­son risky in­vest­ments strug­gle to pro­vide re­turns over time be­cause while they can deliver spec­tac­u­lar re­turns over the short term, they are of­ten un­done by big losses.

The fund is man­aged by Corona­tion CIO Karl Lein­berger and Duane Ca­ble and is over R61bn in size. An­other at­trac­tion of the fund is that it has a fixed fee struc­ture with no per­for­mance fees due for bench­mark beat­ing re­turns. The TER of 1.61% must be largely due to the higher fee struc­ture in its two largest hold­ings, Corona­tion Global Op­por­tu­nity Eq­uity fund and the Corona­tion Global Emerg­ing Mar­kets fund.

The fund com­plies with pen­sion fund guide­lines and can have a max­i­mum of 25% in­vested off­shore, 25% in listed property and 75% in eq­ui­ties. It cur­rently has a high cash weight­ing of 22% and is fully in­vested off­shore. These calls may be what will pro­tect the fund should lo­cal mar­kets fall as well as bring­ing the value of downside pro­tec­tion to in­vestors.

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