Helping to preserve the nest egg A major portion of this fund is invested in money-market type assets with some exposure to equities. It aims to provide capital stability to investors and long-term returns that beat interest on bank deposits.
Allan Gray’s Stable Fund, with its R38.1bn under management, has positioned itself conservatively within the money-market and fixed-income sector, according to Leonard Krüger, one of the fund’s managers. Fixed-income assets, which pay regular interest-type income to holders of the debt, contain risks that the fund’s managers measure to ascertain whether the fund is refunded sufficiently by their returns.
The Stable Fund aims to preserve client’s capital over any measured two-year period, he says. “When it comes to money-market instruments and bonds, the fund views them together and is cognisant of the risks,” he explains. “We take a holistic consideration when we choose which instruments to invest in.”
To this extent, the fund has limited duration risk, or risk associated with longerdated debt, Krüger says. For example, during the troubled days following the sacking of finance minister Nhlanhla Nene, many longer-dated bank debt and especially government bonds saw their yields blow out as uncertainty gripped South Africa.
“When December’s events unfolded, yields on our fixed-income assets, most which have maturities of less than 12 months, hardly moved,” Krüger says.
Government debt has since regained some ground, with many yields on very liquid bonds trading at pre-Nene levels. Nevertheless, at these levels, many market participants are still pricing in a credit rating downgrade, according to Krüger. “Usually, the largest moves in bond prices happen before a downgrade,” he says. In terms of local equity, the fund has seen some opportunities in certain financial and resource stocks over the past couple of months.
“The industrial sector has outperformed the financial sector for a number of years,” says Krüger. Resource stocks have also been significant underperformers, he says.
The financial sector as a whole looks attractive, explains Krüger. Even as banks find themselves in tough macroeconomic and credit-extension environments, he still sees opportunities. For one, banks are better positioned to ride out the current economic situation than they were during the financial crisis, according to him. Over the years lenders built up healthy provisions for non-performing loans, which would act as a cushion should there be a sudden deterioration in their loan books.
Why finweek would consider adding it:
The fund has outperformed its benchmark for any measured period since its launch. It has recorded 81% positive months since July 2000 with its largest monthly drawdown of 4.1% in May/June 2004.
The fund’s size is testament to its long track record with mostly pensioners who are looking to realise a steady income while preserving their nest eggs, making it an ideal fund to take advantage of.
The cautious approach to credit instruments in the SA market reduces the fund’s return volatility – something one wouldn’t like to see in a stable fund.