Sticking to its plans
PPS has continued to hold on to its longterm strategy despite short-term market volatility, writes Johann Barnard
With funds now showing a 10year track record, PPS Investments can look back with a great degree of satisfaction and the sense that the funds and chosen investment strategies are delivering value to its members, says executive of research and investments David Crosoer.
The company is a mutual organisation and the only financial services provider in SA focused exclusively on graduate professionals.
Its offerings include tailormade insurance, health-care solutions and investment funds.
“Starting a business in mid2007, just before the global financial crisis and when equity markets looked relatively expensive, was undoubtedly challenging.
“Fortunately, we launched with farsighted shareholders who shared our long-term perspective,” Crosoer says.
In the period since the world markets were shaken to their core, PPS Investments has grown its funds to include three inflation-targeting unit trusts, an index tracker fund and five funds that aim to outperform relative to the peer or market benchmark.
Crosoer says that while the funds have grown in number and assets under management, the challenge of managing and growing assets has not diminished. “Our most immediate challenge after launching was being willing to hold equities in late 2008 and into 2009 despite the uncertainty around markets. Today the [most difficult aspect] is arguably still being willing to hold equities despite a lengthy bull market.
“The biggest challenge we have faced has probably been to deliver consistent returns in our higher-risk funds despite an SA equity market that has remained concentrated, while the global market has been boosted by exceptionally loose monetary policy.
“Mitigating these risks has not always been easy. We’ve stuck with managers that haven’t held Naspers, for example, despite the impact of this on short-term performance. We have also not held global bonds in our portfolios for more than a decade, despite the potentially negative effect on short-term performance, because long term we think it [they] will lose money.”
With total assets of just less than R29bn under management, the PPS Investments team carries great responsibility. Its multimanager approach has proven successful in extracting the best results from its chosen asset managers.
“The key to this strategy has been the acknowledgement that protecting assets is the most prudent approach.
“This has meant that we’ve done things that, at the time, might have seemed odd — such as holding equities in early 2008 or holding onto an unfashionable manager because we bought into its process,” Crosoer says.
“These decisions, however, have not so much reflected greater foresight as perhaps greater fortitude.
“We knew that to have any chance of consistently achieving our objectives we would need to stick to our investment process.”
This process involves taking a sober view of the need for growth over the long term. Crosoer says fund composition has demanded the appropriate allocation to equity assets to deliver growth, without undue exposure to place gains at risk.
“Based purely on valuations, expected SA and global equity market returns look relatively mediocre for the medium term. This should not be too surprising, as markets have rallied considerably since the global financial crisis and exceptionally loose monetary policy is being withdrawn.
“We know, however, that valuations can be a poor shortterm predicator of equity market returns.
“Our investment process is deliberately constructed not to try to time the market, but rather to remain sufficiently diversified across managers and asset classes to withstand market volatility.” And volatility is one aspect of local and global markets investors have had to endure by the bucket loads.
Crosoer acknowledges that staying the course in the face of such swings is never easy, but encourages investors to avoid the urge to bail out of an investment plan.
He says financial advisers have a big role to play in this respect to guide investors through turbulent times and reinforce the importance of sticking to long-term goals despite the short-term noise.
Picture: 123RF — ALEXMIT
David Crosoer ... fortitude