Weekend Argus (Saturday Edition)
Top Centaur flexible fund seeks quality shares at the right price
CENTAUR BCI FLEXIBLE FUND
a maximum exposure of 30 percent to offshore securities (including five percent to Africa) and 10 percent to any single share.
Equity forms the backbone of the Flexible Fund’s portfolio. Williams says: “At Centaur, we identify three equity market states: positive, neutral and negative, and in each market state, where our target equity content is 90 percent, 80 percent and 60 percent respectively. These market states are identified based on proprietary indicators and savvy judgment.” He says the fund’s asset allocation is designed to bolster returns in major bear markets by protecting capital, while buying into the deepvalue opportunities that such a market spawns. “We have a high degree of flexibility to move out of equities into other asset classes, but practically don’t find changes in market states happening often.” Williams says that once the overall allocation has been decided, Centaur’s basic philosophy is finding quality shares at the right price. “Good quality is defined by reasonably stable profits, great management, a high return on equity and good growth prospects. Opportunities arise when there is a wide disparity between our estimate of the value of a share and the market price.”
As part of their investment strategy, Centaur focuses on 11 “areas of opportunity”, including turnarounds, corporate actions, domestic cyclicals, and stalwarts. “For example, our corporate action category consists of companies that are restructuring, often presenting valuable opportunities for astute stock pickers,” Williams says.
On the past five years, Williams says it is no secret that the period has produced challenges. “Fortunately, Centaur has geared itself through its investment processes to successfully navigate volatile times.”
He gives the following examples of how the Flexible Fund has successfully negotiated the market:
• Centaur moved about 10 percent of the fund into euros and United States dollars in 2011 at excellent levels and capitalised on the subsequent rand weakness.
• Centaur bought a 10-percent holding in Rand Merchant Insurance in 2011, which more than tripled in value by 2015.
• In 2015, with over 20 percent held directly offshore, the fund benefited from a falling rand and excellent international stock picks. In early 2016 the fund locked in a portion of gains on rand weakness using futures.
• In late 2015 and early 2016, Centaur invested in selected deep value and resource stocks, which have performed exceptionally.
Looking ahead, Williams and his team are optimistic about the Flexible Fund’s prospects, expecting an economic recovery off a low base, leading to improved confidence and better economic momentum.
“We have identified selected shares with high prospective return potential and are targeting an equity content of over 80 percent, with a focus on South African equities,” he says. “From a sectoral perspective, we have increased exposure to domestic cyclical shares, which have excellent recovery potential, and select resource counters at the expense of offshoreoriented shares.
“Our mission at Centaur Asset Management is to keep doing what we do by implementing calculated moves to offer our clients optimal returns,” Williams says. – Martin Hesse
Afocus on generating returns above inflation and protecting investors’ capital from losses has earned the Prescient Income Provider Fund its second Raging Bull Award in two years.
The fund’s peers in the South African multi-asset income and interest-bearing sub-categories might out-perform it over the short term, but beating peergroup performance is not the fund’s aim. Instead, it carefully selects low-risk, interest-bearing instruments to provide investors with inflation-beating returns over the long term.
The Income Provider Fund returned an average of 9.5 percent a year over three years to December 31, 2016, according to ProfileData. The 50 funds in the South African multi-asset income sub-category with a performance history of at least three years produced an average return of 6.84 percent a year. The fund has been the top-performer in is sub-category over the fiveyear (9.16 percent) and 10-year (9.31 percent) periods to the end of December.
The interest-bearing shortterm sub-category returned an average of 6.8 percent a year over three years, while the interestbearing variable-term (bond fund) sub-category returned on average 6.67 percent a year.
As a multi-asset income fund, the Income Provider Fund can, in addition to cash and bonds, invest in equities (up to 10 percent of the portfolio) and listed property shares (up to 25 percent). The fund can invest 25 percent offshore and a further five percent in Africa. Funds in the interest-bearing sub-categories can invest only in interest-generating assets, such as cash and bonds. This ability to diversify gives multi-asset income funds a good chance of out-performing inflation when interest rates are low and inflation is high.
The Income Provider Fund aims to deliver a return of inflation, as measured by the Consumer Price Index (CPI), plus three percentage points a year