Savvy approach to asset allocation, stock picking keeps fund ahead

CENTAUR BCI FLEXIBLE FUND

its benchmark (10.2%), which is a composite of the Financial and Industrial Index, the Resources Index and the repo rate.

At the end of last year, the main asset classes into which it was invested were: local equity (58.2%), offshore equity (18.8 %), local cash (12.3%) and local bonds (6.3%).

Its five top equity holdings were

Old Mutual, Woolworths, British American Tobacco, Rand Merchant Insurance and Naspers.

The fund has been managed by Roger Williams and his team since its inception in 2004, after he founded Centaur Asset Management in 2000.

Williams is a Chartered Financial Analyst, with experience as a foreign exchange dealer, equity analyst and portfolio manager.

Multi-asset flexible funds invest almost without constraints across all the main asset classes of equities, bonds, listed property and cash instruments, but equities form the backbone of the Centaur BCI Flexible Fund’s portfolio.

For last year’s Raging Bulls edition, Williams told Personal Finance that, in determining asset allocation, Centaur identifies three equity market states: positive, neutral and negative. In each market state, the target equity content is 90%, 80% and 60% respectively. “These market states are identified based on proprietary indicators and savvy judgment,” he said, adding that the fund’s asset allocation is designed to bolster returns in bear markets by protecting capital, while buying into the deep-value opportunities that such a market spawns.

Last year proved challenging for equity investors, beginning sluggishly, but with the local stock market improving fairly dramatically in the past few months. This week, Personal Finance asked Williams whether it was able to take advantage of this surge.

“At the beginning of 2017, the Centaur BCI Flexible Fund had 78% equity content (including property), which declined to 65% by mid-year due to very strong inflows which were not immediately deployed. In early July, equity content was increased and, by the end of the third quarter, equity content was 75%, and this is where the fund ended the year. The fund materially took advantage of the equity surge in the latter part of the year and registered a 15% return for 2017,” Williams says.

He says the fund’s major outperformers during the year were its international stocks: Fiat Chrysler Automobiles, Chinese internet company NetEase and Italian-Dutch investment holding firm Exor.

“We also benefited from a very strong performance from African Rainbow Minerals, which was a new holding initiated in the second quarter. An underperformer was Woolworths, due to persistent negative earnings surprises, but this holding was reduced when we realised it would not meet our expectations.”

Williams said that most of the top 40 shares on the JSE are trading on relatively high valuations and it is difficult to find value among these counters.

“However, there are pockets of excellent value among mid- and small-capitalisation stocks, and the Centaur BCI Flexible Fund has been actively buying a selection of such stocks.

“Value has emerged in bombedout platinum stocks, which will benefit from surging palladium and rhodium prices, and the holding in Impala Platinum was increased in December.

“The fund has overweight exposure to construction-related stocks, in particular Wilson Bayley Holmes and cement producer PPC, which will benefit from a stronger local economy.

With about 20% in offshore assets, Personal Finance asked Williams whether he would decrease that exposure in response to what looks like a stronger rand in 2018.

“I think remitting rands back to South African now may be a case of shutting the stable door after the horse has bolted. Jacob Zuma remains our president, a sovereign downgrade seems likely and

Eskom is bankrupt – these are all significant issues which could result in rand weakness at some stage during this year.

“I still expect strong dollar returns from the offshore holdings, which will translate into good rand returns if the rand is stable. Offshore exposure provides valuable diversification benefits to the fund,” Williams says. – Martin Hesse

Roger William, manager of the Centaur BCI Flexible Fund receives his award.