In­vest­ing for a com­fort­able re­tire­ment

Finweek English Edition - - OLD MUTUAL INVESTMENT GROUP -

It’s in­creas­ingly agreed that the need for in­vestors to ag­gres­sively mi­grate away from eq­ui­ties and buy bonds be­fore hit­ting the fi­nal stretch lead­ing to re­tire­ment is for the most part false. This is not a suit­able strat­egy for ev­ery­one.

And if one opts for a multi-as­set fund on a long-term view, one also has to be ex­tremely care­ful about the na­ture and choice of any fund. The di­ver­gence and con­sis­ten­cies be­tween the best- and worst-per­form­ing man­agers has be­come dis­tinctly marked.

How­ever, a fund that ticks most boxes for the good is the Old Mu­tual Sta­ble Growth Fund man­aged by se­nior port­fo­lio manager John Or­ford of Old Mu­tual In­vest­ment Group’s MacroSo­lu­tions bou­tique.

With R4.2bn un­der man­age­ment, the Sta­ble Growth Fund gen­er­ated a 12.1% re­turn in the year to March, an av­er­age an­nual 10.7% over f ive years, and an av­er­age 9.1% since in­cep­tion in Jan­uary 2007.

Its per­for­mance tar­get is CPI 3% to 4% gross of fees and not to lose money over any 18-month pe­riod. It has de­liv­ered just about 3% real re­turns net of fees to in­vestors since its in­cep­tion. Its risk ma­trix shows that for 96% of all the rolling 18-month pe­ri­ods since in­cep­tion, it has ex­pe­ri­enced no cap­i­tal losses.

Ot h e r a t t r a c t i o n s a r e that MacroSo­lu­tions with un­der R50bn as­sets un­der man­age­ment is a rea­son­ably un­con­strained and nim­ble player in the mar­ket in its quest for op­por­tu­nity.

Says Or­ford: “The fund is suited to in­vestors who want their cap­i­tal to grow in real terms and re­ceive a mod­er­ate level of in­come, with con­trolled risk of cap­i­tal loss in the short term.”

It may in­vest up to 40% of its port­fo­lio in eq­ui­ties and up to 25% off­shore. Its big­gest hold­ings at present are in­ter­na­tional eq­uity 19.6%, South African eq­uity 12.1%, SA gov­ern­ment bonds 28.9% and SA cash 25.9%.

“We have had an over­weight po­si­tion to to­tal eq­ui­ties, but the way we have played that is to be over­weight in­ter­na­tional eq­ui­ties and un­der­weight South African eq­ui­ties,” Or­ford ex­plains.

He s ay s t hat MacroSo­lu­tions’ long­stand­ing view is that global eq­ui­ties are more at­trac­tively priced and have the tail­wind of grad­u­ally im­prov­ing eco­nomic growth in the US to sup­port earn­ings and hope­fully the same will ap­ply in Europe.

“Our un­der­weight po­si­tion in lo­cal eq­ui­ties has ad­mit­tedly de­tracted from the fund’s per­for­mance rel­a­tive to its bench­mark, but it has been off­set by good qual­ity se­lec­tion. Be­ing over­weight f inan­cials, which of­fer an at­trac­tive div­i­dend yield, and un­der­weight re­sources, which con­tinue to feel the brunt of China’s slow­ing growth, has ben­e­fit­ted the fund.”

Top hold­ings in­clude Naspers*, Old Mu­tual, FirstRand, Bar­clays Africa, Ned­bank Group and Rhodes Food Group.

The f und has been par­tic­u­larly re­warded by Naspers with its high growth in earn­ings, Or­ford em­pha­sises. “This counter has rightly been given a pre­mium rat­ing in an en­vi­ron­ment with very lit­tle un­der­ly­ing growth.

“The key driver is its 34% hold­ing in Chi­nese in­ter­net and mo­bile ser­vices com­pany Ten­cent. With its di­verse range of rev­enue streams and China’s tran­si­tion from in­fra­struc­ture to a con­sumer-driven econ­omy, to­gether with the pop­u­la­tion mov­ing up the mo­bile phone tech­nol­ogy lad­der, the growth prospects for Ten­cent, and hence Naspers, re­main in­tact.”

Or­ford’s po­si­tion on do­mes­tic nom­i­nal bonds is that with an 8% yield on 10 years, they’ve of­fered a rea­son­able real re­turn com­pared with their in­ter­na­tional coun­ter­parts and rel­a­tively at­trac­tive risk ad­justed re­turns com­pared to other as­set classes. “While South African bonds might be vul­ner­a­ble to a sharp rise in global bond yields, we don’t ex­pect that given gen­er­ally sub­dued eco­nomic growth and inf la­tion prospects in de­vel­oped economies, and in­deed many emerg­ing economies, and cur­rent real yields are rel­a­tively at­trac­tive.”

*Finweek

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