Investing for a comfortable retirement
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.”