Case for investing in the Old Mutual Balanced Fund
Investors seeking a fairly simple solution to their long-term investing would do well to seriously consider opting for the Old Mutual Balanced Fund. It’s particularly suitable as a standalone retirement investment.
Managed by Graham Tucker, the fund seeks moderate to high long-term growth, with less volatility in the short term than pure equity. As at 31 January 2015, the Old Mutual Balanced Fund returned an annualised 13.9% since inception in March 1994 and an annualised 15.8% over three years.
Cape Town- b or n Tucker, 37, matriculated at Fairbairn College in Goodwood and graduated at UCT with a BSc (Hons) in actuarial science.
He joined Old Mutual Investment Group in 2000 and was nurtured under the wings of industry leaders such as Adrian Allardice, Charles de Kock and Denzil Burger. He was also exposed to quantitative investing and spent several years with the investment house’s risk team.
“Quants work gives you considerable long-term perspective and my exposure to the risk team taught me how to construct portfolios, scrutinise them intensely, and think through the risks,” he says.
Tucker is the portfolio manager of MacroSolutions’ range of balanced funds, with his colleague Warren van der Westhuizen managing the local equity portion of the fund. Before assuming this responsibility in 2014, they had worked together on a number of aggressive funds, including Old Mutual Edge28.
I n ad d i t i o n , Tu ck e r is the MacroSolutions’ quantitative strategist, risk manager and a member of the asset allocation group. He is quantitatively driven and adds value t hrough his ability to thoroughly test ideas prior to implementation.
Tucker says that he has no biases as such, other than seeking assets if they have a good story and/or are cheap.
“Our investment philosophy is quite unique in that we blend theme and price, which means that we give considerable cognisance to the macro environment, while also taking valuation into account. In the broader market, the general tendency is to pay more attention to valuations.”
Additional institutional strengths, he notes, are the boutique’s ability to leverage off the wider Old Mutual team, and its access to the life company with its longterm focus, which is key to the way the boutique manages money.
The Old Mutual Balanced Fund, he points out, has exposure to all sectors of the market (shares, bond and property) as well as the regulatory maximum in global equity. Derivatives may also be used for risk management purposes.
Considerable emphasis is placed on the merits of the fund’s optimal size at R13bn. “We aren’t that small that we can’t access certain assets, and nor are we that big that we’re forced to buy, say, 20% of a company to have a position in it.”
International equities currently constitute 24.5% of the portfolio, South African equities 41.4%, nominal bonds 18.1%, SA cash 9.5% and SA Property 4.6%. The performance target is CPI + 5% to 6% a year gross of fees.
“Although we expect returns to be lower this year, our investment philosophy and process give me confidence that the Old Mutual Balanced Fund will continue to deliver good returns sought by our clients,” says Tucker.
HE BELIEVES THAT THE FOUR MOST IMPORTANT THEMES BEING PLAYED OUT AT PRESENT ARE THESE:
The lower oil price that’s putting money back into the hands of the consumer. • SA looking better for the short term, also off the back of the lower oil price. The oil price’s knock- on effect on inflation, pushing the interest rate cycle out further. China’s long- term transition from being an investment-led economy to a consumer-led economy. Global equity remains Tucker’s preferred asset class, and being concerned about locally-focused counters, he and Van der Westhuizen have gained additional international exposure through holdings in counters such as Richemont, Naspers* and Steinhoff, to mention a few.
“Within the local equity portfolio, we have shifted away from resources towards the more SA Inc-type stocks. For example, Warren bought Foschini at R120 and now it’s R173. He has also bought Imperial and Capitec, which have added value to our clients.”
Tucker is well disposed to nominal bonds, bel i ev i ng t hat t he market downturn last year was overdone and that a correction was warranted. “In the past 12 months, we have increased our weighting from 7% to 18.1% which is a very significant shift. And within the bonds component, we have been buying longer-dated bonds, which have really benefitted from the rally. In fact, they have returned 27.7% during the past year.”
Local bonds, he explains, have benefitted from the decline in global bond yields and from the decline in local inf lation, which is likely to continue in the next few months on secondary oil benefits.
On listed property, Tucker says that while it has generated phenomenal returns in recent years, it has rerated relative to other asset classes, especially inf lationlinked bonds.
*Finweek is a publication of Media24, which is a subsidiary of Naspers.