Taking advantage of global trends The fund aims to deliver a high long-term total return to investors. It has a steep benchmark of seven percentage points above inflation and uses a bottom-up and top-down approach to selecting stocks.
According to Kyle Hulett, manager of the fund, the stock selector analyses a company’s financial fundamentals (bottom-up) and takes cognisance of the macroeconomic environment that a company operates in (top-down).
“I’m looking for companies that have a dynamic management team, are in profitable industries and are currently doing well and enjoying strong momentum,” says Hulett. “From a top-down perspective, I look at what’s happening to global currencies, interest rates and global economic growth.”
The fund had a large allocation to global bonds, global property and gold, explains Hulett. This is due to his belief that interest rates will continue to be low for a very long time and domestic economic growth is “non-existent”.
“The reason I think growth won’t exceed current levels is that debt is too high,” says Hulett. “Debt is the reason the world entered the 2008 US subprime crisis. Debt is the reason we had the European sovereign debt crisis in 2011.” In China, local government funding vehicles, which borrowed money from banks and shadow financial institutions, led to the country’s municipal debt crisis last year.
The world has seen three debt-induced bear markets over the past seven years, which were survived by taking on more debt, he explains. Currently global debt is higher than it was in 2008. “When debt is high, every response that the economy has is magnified. Volatility is high. Growth is low as people attempt to repair their balance sheets.”
Hulett doesn’t expect central banks to increase interest rates as much as they hope due to elevated debt levels of government, corporates and households in a bid not to curb economic growth. When interest rates increase, governments, corporates and households alike have less discretionary spending power, which limits the output of economies.
Hulett’s focus is on SA stocks with global revenue streams and buying offshore equities and fixed-income stocks through tracker funds. He has positioned the fund to take advantage of volatility in the currency, equity and bond markets.
Why finweek would consider adding it:
The fund has performed well over the past almost 12 months and posted a 35% investor return since the start of January.
Hulett’s view on the interaction between debt and its limiting effect on economic growth is a prudent macroeconomic view; aligning a fund to benefit from this harsh reality is attractive. With its steep benchmark, namely seven percentage points above consumer price inflation, the manager would need to work magic in coming years to deliver these types of returns to investors.
The fund’s total investment charge, which is at the upper end when compared with peers, should not pose a problem if returns remain elevated at current levels.