Sunday, January 16

This year’s best performing balanced fund and its unusual asset allocation

Best-performing fund over the past year in Citywire’s mixed assets – Balanced ZAR category achieved 44.1% annual return. And Co-Director Ian Anderson believes this is largely due to its differentiated asset allocation.

The R1.4 billion Counterpoint fund managed by SCI P&Git outperformed its benchmark four times and was the first of 159 funds in its class. The fund’s benchmark, which rose 10.9% for the year ending October, is consumer price inflation plus 6%.

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The asset classes that contributed significantly to the fund’s performance were local properties and preferred stocks. Domestic capital, especially small- and mid-cap stocks, and locally focused dividend-paying companies were also key.

“The fund’s performance is a function of the differentiated portfolio, which has a higher allocation on average to growth assets,” said Anderson of Counterpoint Asset Management. Citywire South Africa during an interview. The fund’s other portfolio manager is Richard Henwood.

Anderson added that the portfolio has seen a strong recovery over the past 18 months due to its weighting in domestic stocks and properties.

“We don’t have any direct foreign exposure, which is very unusual for a high-end fund with multiple assets. However, we get that overseas exposure through rand hedges, ” he said.

The fund aims to provide South African investors seeking income upon retirement.

‘We have interests in good quality South African companies that increase their dividends over time. We supplement that with a higher allocation to listed property to drive performance.

The fund’s return on income is just under 7%, which is high for a balanced fund with 80-85% exposure to growth stocks. That’s a value function in the South African market right now. The fund’s domestic equity component is yielding 5.5%, ”Anderson said.

“All the shares that the fund owns have paid dividends again. Many of them are already paying dividends above 2019 levels. However, most share prices are below 2019 levels. We expect the equity portion of the fund to increase dividend income by around 15% per year for the next three years, “he said.

High property exposure

He said it was unusual in South Africa for a balanced fund to have high exposure to listed properties, which account for almost 21% of the portfolio.

“If you look at the statistics from the South African Savings and Investment Association, South African balanced funds typically have an overall exposure to listed properties of around 3.5% of their assets,” Anderson said.

A large asset manager couldn’t achieve this kind of high real estate exposure, but a smaller asset manager like Counterpoint had the flexibility to do so, he said.

‘We have also seen a substantial recovery in [listed property] dividends. We benefit from a strong recovery in publicly traded real estate prices driven by corporate stocks because these huge discounts on NAV are becoming attractive. ”

Another unusual asset allocation decision is that the fund has 5% of its assets dedicated to preferred shares.

“That position was a huge contributor to total return in 2021. We only own bank preferred shares. The fund invested in these stocks over the past year when they were trading at 65% of face value and the market was concerned about the health of the banks and whether they could pay dividends, “Anderson said.

On the fund’s outlook, Anderson said he expected strong growth in equity values ​​over the next 12 to 18 months as the world normalized.

Since its inception in March 2012, the fund has achieved an annualized return of 6.8% versus a benchmark return of 11%.

Anderson attributed the fund’s lag in long-term performance to its national focus. Since 2018, South African equities and listed real estate stocks have seen a substantial devaluation due to a decline in investor sentiment. Offshore investors were also underweight South African assets, he said.

Justin Brown is a reporter for Citywire, providing knowledge and information for professional investors globally.

This article first appeared on Citywire South Africa hereand republished with permission.

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