Focused on property, offshore equities
The fund’s maximum exposure to equities is 60% and it is suitable for investors with an investment horizon of five years and longer.
The fund’s almost 20% exposure to the listed property sector is attributable to the dual-income characteristics of South African rental properties, explains Philip Bradford, manager of the Sasfin MET Balanced Fund. On the one hand, the sector delivers solid rental yields and on the other they grow at a relatively predictive rate every year compared to other companies.
“This is unique to South Africa,” he says. “Property stocks provide stable and dependable income growth. It is by far the best-performing asset class in SA over the past 20 years.”
The fund’s 31% exposure to domestic interestbearing assets is almost entirely allocated to corporate debt, according to Bradford. The fund does however hold some government-guaranteed bonds issued by Eskom and the SA National Roads Agency, he says.
“Corporate bonds give us a good yield pickup,” he says. “Therefore we have little need to hold government bonds.” He explains that some bank bonds are delivering yields of over 12%. However, the market has largely priced in a sovereign debt downgrade for SA, Bradford explains. Domestic government debt is delivering high yields relative to global peers in worse positions, such as Russia, Brazil and Turkey, according to him.
In terms of equities, the fund’s allocation to local stocks is focused on companies with large earnings derived from offshore operations, says Bradford. Naspers, with its large stake in Chinese mobile-game company Tencent, is the fund’s largest local stock investment.
The fund has been underweight in its full possible allocation to offshore equities since the start of the year as it was reluctant to take money out of the country amid the rand’s volatility, explains Bradford.
“When investing offshore, investors tend to underestimate the currency risk which can be a double-edged sword,” he says. “This risk is better played out in equities than lower-yielding bonds, for example. That is why we prefer to invest in equities when we take money offshore.”