The best performing balanced fund of the year and its unusual asset mix

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Last year’s best performing fund in Citywire’s blended asset class – ZAR Balanced achieved an annual return of 44.1%. And co-manager Ian Anderson thinks that’s in large part because of his differentiated asset allocation.

The R 1.4 billion Counterpoint SCI Managed P&G fund quadrupled its benchmark and ranked first out of 159 funds in its category. The fund’s benchmark, which was up 10.9% over the year ended October, is consumer price inflation plus 6%.

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The asset classes that significantly contributed to the fund’s performance were local real estate and preferred stocks. Domestic stocks, especially small and mid-cap stocks and local dividend-paying companies, have also played a key role.

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

Anderson added that the portfolio has seen a strong rally over the past 18 months due to its weight in domestic stocks and real estate.

“We don’t have direct exposure to offshore, which is very unusual for a high equity multi-asset fund. However, we get that offshore exposure through rand hedges, ”he said.

The fund aims to provide South African investors who are looking for retirement income.

“We have stakes in good quality South African companies which increase their dividends over time. We complement this with a higher allocation to listed real estate to strengthen performance.

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

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

Strong real estate exposure

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

“If we look at statistics from the Association of Savings and Investment South Africa, South African balanced funds generally have an aggregate exposure to listed real estate 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 small asset manager like Counterpoint had the flexibility to do so, he said.

“We have also seen a substantial recovery of [listed property] dividends. We have benefited from a strong rally in quoted real estate equity prices driven by corporate actions as these huge discounts on net asset value become attractive. ‘

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

“This position was a big contributor to total return in 2021. We only own bank preferred shares. The fund invested in these securities over the last year, when they were trading at 65% of par, and the market was concerned about the health of banks and their ability to pay dividends, ”said Anderson.

Regarding the fund’s outlook, Anderson said he expects strong growth in capital values ​​over the next 12-18 months as the world normalizes.

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

Anderson attributed the fund’s lag in long-term performance to its domestic stance. Since 2018, South African domestically focused stocks and listed real estate stocks have experienced a substantial devaluation due to declining investor confidence. Offshore investors were also underweight South African assets, he said.

Justin Brown is a reporter at Citywire, which provides insight and information to professional investors around the world.

This article first appeared on Citywire South Africa here, and republished with permission.


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