Balanced funds: are you losing out?

Patrick Cairns

Asisa’s latest unit trust statistics appear to show SA investors are more risk averse than those in the rest of the world. Local investors prefer using multi-asset funds; the rest of the world makes far greater use of equity portfolios.

SA’s move into multi-asset, or balanced funds has been pronounced over the last decade. Conventional thinking suggests this means SA investors are giving up some of their returns. However, it’s not that clear cut.

First, 10 years ago the most popular funds were fixed interest portfolios. Local investors have thus on average been moving up the risk spectrumm, suggesting they’ve actually been improving their prospects for better longterm returns.

Second, multi-asset high-equity funds have on average delivered better returns than equity funds over every meaningful period.

There are only a few funds with 20-year track records, so the figures for the longest period are perhaps statistically questionable. In addition, these are average returns, so investors in different funds may have had very different experiences.

The top-performing funds in their respective categories, however, would have outperformed the Alsi in all cases.

Over the longest time frame (20 years) the top multi-asset high-equity fund (Investec Op-

The top-performing funds in their respective categories, however, would have outperformed the Alsi in all cases. ...ago the most popular funds were fixed interest portfolios

portunity Fund) showed a better return than the top general equity fund (Nedgroup Investments Value Fund). It also outperformed the All Share and Mid Cap indices.

Similarly, the bottom balanced fund outperformed the bottom equity fund sizeably. These portfolios did, however, lag the benchmarks.

While it’s important to know past performance is no indication of the future, this does suggest SA investors are being pretty astute by using multi-asset funds. While they may be more risk-averse, this doesn’t mean they’re giving up performance.

Also, over every period, the range between the top and bottom multi-asset high-equity fund is narrower than that between the top and bottom equity fund. Investors in this category are therefore also reducing their margin for error – the risk of picking the wrong manager.

Finally, it’s worth noting that while the top-performing managers always managed to beat the Alsi, the margin becomes smaller over longer periods. It’s also not the same managers delivering this outperformance every time.

So not only would investors in index-tracking products have been significantly better off than those in the average fund, but they’d have also seen far more consistent performance.