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.

Finweek English Edition - - MARKETPLACE -

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.

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