Where to find ap­pro­pri­ate pro­tec­tion?

There has been lots of tur­moil in the country in the past few weeks and there might be more to come when Moody’s makes its rat­ing de­ci­sion. There­fore a sta­ble fund might be the best op­tion for now.

Finweek English Edition - - MARKETPLACE - AL­LAN GRAY STA­BLE FUND ed­i­to­rial@fin­week.co.za Craig Gra­didge is a co-founder of Gra­didge-Mahura In­vest­ments.

I was sit­ting in Hyde Park shop­ping cen­tre on 13 April, en­joy­ing a cap­puc­cino and catch­ing up with a bit of read­ing. Sud­denly we heard loud bang­ing noises com­ing from some­where. I looked around and could not see where it was com­ing from, but I no­ticed that peo­ple around me were also aware of the noise.

Of the 10 or so oc­cu­pied ta­bles, one lady got up and quickly moved to an area of safety. Af­ter a few sec­onds, there were gun­shots and scream­ing com­ing from the same area. At this point the re­main­ing pa­trons and I all got up, grabbed our bags, and headed for safety. More gun­shots. Then I no­ticed some­thing strange – a few peo­ple head­ing to­wards the area where the gun­shots were com­ing from.

The ma­jor­ity of peo­ple were scram­bling for safety, but this mi­nor­ity group of peo­ple were in­tensely cu­ri­ous about what was hap­pen­ing. For­tu­nately, the en­tire episode ended soon enough, and apart from the now de­mar­cated area, life in the mall con­tin­ued as nor­mal. We South Africans have a way of bounc­ing back to our warped sense of nor­mal­ity quite quickly.

This whole episode seemed to mir­ror SA in­vestors over re­cent weeks. Peo­ple were con­cerned by the sud­den re­call of the in­cum­bent fi­nance min­is­ter from an in­vestor road­show, but that did not seem enough to con­cern the ma­jor­ity of peo­ple. When the bang­ing noises ini­tially started, a chap at a ta­ble near me con­fi­dently told his con­cerned-look­ing com­pan­ion that there was con­struc­tion work hap­pen­ing up­stairs. In­ter­est­ingly, when the gun­shots went off, he was in front of her go­ing to find a safe place.

We did not get any calls from clients in the days be­tween Pravin Gord­han be­ing re­called and be­ing fired. We took a num­ber of calls on the morn­ing af­ter he was fired.

A ques­tion a num­ber of clients and new in­vestors now have is: where do I find a place of safety for my in­vest­ments? A num­ber of prover­bial shots have been fired since Gord­han’s re­call, in­clud­ing the rat­ing down­grades from Fitch and S&P, and the res­ig­na­tion of Trea­sury di­rec­tor-gen­eral Lungisa Fuzile. Shares in the fi­nan­cial sec­tor of the JSE were ham­mered, the cur­rency moved from around R12.34/$ to around R13.70/$, and bond yields pushed up. There may be more to come as Moody’s is yet to an­nounce its de­ci­sion in terms of the country’s credit rat­ing, and there is the mat­ter of the ANC elec­tive con­fer­ence in De­cem­ber.

Con­sumer and busi­ness con­fi­dence has been hit quite hard, and in April we saw re­tail trade and man­u­fac­tur­ing data a lot weaker than ex­pected. Wor­ry­ingly, this data is from be­fore the ef­fects of the cur­rency weak­ness and the down­grades. So a tech­ni­cal re­ces­sion looks likely given that GDP growth for the last quar­ter of 2016 was neg­a­tive. So what should in­vestors do now; is there a place of safety that of­fers their funds ap­pro­pri­ate pro­tec­tion?

The Al­lan Gray Sta­ble Fund (AGSF) is a suit­able fund for the ma­jor­ity of peo­ple con­cerned by what is hap­pen­ing at the mo­ment. Not only do in­vestors want pro­tec­tion against down­side in the short term, they also re­quire pro­tec­tion against in­fla­tion over the medium to long term (if the un­cer­tain en­vi­ron­ment per­sists for a while longer). To achieve these dual out­comes, in­vestors will need a fund with a broad enough man­date that al­lows the man­ager to pro­tect them against down­side risk, and against in­fla­tion risk. The AGSF has a long track record of do­ing ex­actly this.

My ini­tial re­sponse to in­vestors was to sug­gest a low-eq­uity multi-as­set class fund so that in­vestors could ben­e­fit from low costs as well. How­ever, given the state of flux that we are cur­rently in, our pref­er­ence is for an ac­tive man­ager with a track record of suc­cess­fully nav­i­gat­ing such mar­ket con­di­tions. For those in­vestors that place a pre­mium on cost-sav­ing, the Sa­trix Bal­anced Low Eq­uity fund or the Ned­group Core Guarded Fund are op­tions to con­sider.

I had a call from a friend the other day. He wanted to know if the time to in­vest in banks is now. I liken him to the few peo­ple that made their way to­wards the jew­ellery store when the rob­bery was in progress.

Peo­ple were con­cerned by the sud­den re­call of the in­cum­bent fi­nance min­is­ter from an in­vestor road­show, but that did not seem enough to con­cern the ma­jor­ity of peo­ple.

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