Coronation Balanced Plus A, Investec Opportunity A, Allan Gray Balanced Fund, Prudential Balanced Fund, Foord Balanced Fund
High-equity funds may invest up to 75% of their assets in shares, whether foreign or domestic. These funds are subject to Regulation 28 of the Pension Funds Act, which means that they are suitable for investment that is designed to lead to a capital sum at retirement.
If you are looking for a single fund in which to invest your retirement annuity, the high-equity category is the place to look. There are 155 funds in the category, but it is dominated by the five funds featured here: the R100bn-plus Allan Gray Balanced, the R84bn Coronation Balanced, the R48bn Foord Balanced, the R37bn Investec Opportunity and the R12bn Prudential Balanced.
The life offices have respectable balanced funds, as high-equity funds are more commonly known. Stanlib, the fund manager owned by Liberty Life, has five funds in the category, sadly all below average over the past year. SIM Balanced is also below average; 114 out of 155. Nedgroup is the bottom performer in the category, as its Nedgroup Managed Fund, run by deep-value manager RECM, has lost 16% over the past year.
Of the large life office-owned funds, Old Mutual Balanced is the best, with a respectable 9% return and in the top third of funds. It is ahead of several of the big five funds favoured by independent financial advisers over a year.
Allan Gray Balanced and Investec Opportunity are in the fourth quartile, Coronation Balanced Plus is right on the median line, Foord Balanced is marginally above median and only Prudential is ahead of Old Mutual. Of course, these are not funds to pick and choose on the basis of a one-year performance.
It is important to make a qualitative analysis of the teams that will be running the fund you choose. These funds cannot be run by a one-man band, as they require expertise in local equities, foreign equities, global and local bonds, property and, ultimately, asset allocation. Research shows that up to 90% of the difference in returns between funds can be attributed to asset allocation.
Prudential has a capability to offer a tactical asset allocation (TAA) overlay for pension funds. It has gone a long way towards making TAA respectable and differentiating it from the more speculative activity of market timing. It is certainly in your interest as an investor to leave the asset allocation to the asset manager rather than to a financial adviser, a consultant or a multimanager.
A few years ago the fashion was to buy building-block funds — a property fund, a financial fund, a bond and so forth. Then it became accepted that putting the assets together was the most important task and could not be done either on a static basis (such as 60% equity, 40% bonds) or by a multimanager in accordance with some actuarially-based process.
A multimanaged balanced fund isn’t necessarily a bad thing. The 27four Asset Select fund is in the top quartile of funds over three years, and the Sygnia Skeleton Balanced Fund, which invests in a range of index funds, is a few ranks above that, with a 9,5% return over one year.
But if you invest through an adviser the chances are that he will recommend that you invest in one of the five funds below. They are accessible, with minimum debit orders of R500/month. If you invest this through a retirement annuity, this contribution is tax deductible — though you won’t be able to touch it until you reach age 55.
Each of these funds has a marketable pedigree. Investec Opportunity started in 1997 as a flexible fund run by Piet Viljoen, with a definite value bias. But when Viljoen left in 2003 to form RECM, his replacement, Clyde Rossouw, who ran the Investec Growth fund, moved the fund in the direction of what is now known as “quality”. Remember that there is no Investec house view, so if you are looking for a fund to track Investec’s excellent institutional performance (as shown in the Large Manager Watch) the nearest proxy is the Discovery Balanced Fund, run by Chris Freund.
The other four funds religiously follow the house view under the constraints of Regulation 28, which, as well as the 75% limit on equities, has a 25% limit on offshore assets.
All five funds have international investment capability in-house. The best-endowed is Investec, with a full office in London that manages more than half the R2,2 trillion it manages. Allan Gray himself went off to start Orbis in 1988, and the Orbis Equity Fund has an excellent track record.
Prudential’s sister company, M&G, is one of the largest asset managers in Europe, though unlike its competitors, Prudential will also hire external managers to help with its portfolio.
Coronation and Foord use a combination of in-house skills in Cape Town and external offices. Foord has set up shop in Singapore, though Dave Foord himself ultimately manages the Foord International Fund.
Coronation has outsourced its international assets through a multimanager fund run from London. But it set up capability in Cape Town to run an Africa fund and an emerging markets fund. It now has a developed market equity fund, Global Select.
High-equity funds are suitable for investment that is designed to lead to a capital sum at retirement