Nedgroup’s offshore multi-asset fund wins with value bias
fund have been decisions to invest in financial shares and corporate bonds that have high yields because they are low investment grade or because the company issuing them is distressed.
In the middle of 2015, as the oil price dropped, First Pacific bought more high-yield bonds and financial shares for the fund.
Selmo says the falling oil price forced investors to sell the bonds of companies in the oil and gas sector, and financial companies with credit exposure to this sector were also expected to be affected.
Investors also expected a stricter regulatory environment for banks and other financial companies. The fund saw an opportunity to buy these shares cheap, benefiting when the prices recovered last year.
He says concerns about corporate bonds in the oil and gas sector proved to be overblown, because companies continued to pay interest on their bonds. The European Central Bank’s bondbuying programme also helped to improve yields last year.
Since then, the up-tick in interest rates has increased the earnings potential of financial companies, and it is expected that the administration of US President Donald Trump will change how they are regulated. This has led to a recovery in financial shares.
At the end of December last year, the fund had just over 57 percent in equities, 40.7 percent in cash and the rest in bonds.
Selmo says that, over the past few years since First Pacific has managed the fund, opportunities have been scarce and the cash holding has averaged between 40 and 45 percent, which is high relative to history.
He says it is difficult to say where future opportunities will lie, but opportunities turn up regularly and deliver good returns over three- to five-year rolling periods.
Valuations are currently high, however, and this means investors must expect returns to be modest, Selmo says. – Laura du Preez