Case for in­vest­ing in the Old Mu­tual Bal­anced Fund

Finweek English Edition - - INSIDE -

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.

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