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.

Finweek English Edition - - MARKETPLACE -

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.”

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