Free-for-all investment, almost
s the name suggests, flexible funds are funds with no rules. They can go up to 100% in equities; but don’t be surprised if the manager decides that equities are overpriced and reduces this to less than 40%.
They often have a similar asset allocation to high-equity balanced funds, but they are not governed by Regulation 28 of the Pension Funds Act, which would limit them to 75% in equities.
With R47bn in assets the domestic flexible category has not proved popular with financial advisers.
It has one important limitation, namely that offshore assets cannot be more than 30% of the fund.
Worldwide flexible funds, which can go 100% offshore and 100% domestic at will, have attracted R49bn, but then that category includes two funds from leading unit trust house Coronation: Market Plus and Optimum Growth.
Flexible funds weren’t needed in the early days of unit trusts, when even equity funds would often hold 40% of assets in cash. But as the rules for fund categories became stricter there was demand for a freefor-all category.
Old Mutual Flexible Fund is one of the oldest funds in the category, having started in August 1996, and it should be seen as a more aggressive balanced fund, though often not hugely so — it might raise the local and foreign equity component to about 80%.
Flexible funds also do not usually invest long-term in government bonds, though many have made use of special
STEPHEN CRANSTON
Aopportunities such as the recent bargain prices in government bonds.
They also assume that clients are in their funds for the long term, so make less of derivative to protect in the short term than low-equity or even high-equity funds.
Laurium Capital considers its flexible fund to be its flagship fund, and with its origins as a hedge fund house it concluded that its skills were better suited to the category than to high-equity or general equity, though it has introduced funds in both these categories more recently.
Centaur is another manager that introduced a flexible fund early. Fund manager Roger Williams has added most value through stock picking, but his fund appeals to financial advisers looking for a one-stop Laurium fund that combines both local and offshore stock picking with some astute asset allocation calls.
While Centaur is a boutique with less than R6bn under management (more than half of which is in the Flexible Fund), Truffle — like Laurium — is a mid-sized firm with more than R20bn under management. It is made up of a team which first met at RMB Asset Management, and it is now one of the larger funds in the sector.
The four funds above are similar as they add most value through stock picking. But there are some other funds in the sector that in the past might have been in the old Targeted and Absolute Return category.
Methodical Equity Preserver is one of these funds, and fans of the Old Mutual Dynamic Floor fund should take a look, as former fund manager Sybrandt du Preez has come up with something a lot more sophisticated.
Flexible funds assume clients are in their funds for the long term, so make less of derivative to protect in the short term than low-equity or even high-equity funds
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