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Fund manager insights:
NFB Asset Management’s investment philosophy is based on three key beliefs, says managing director Paul Marais. First, that asset allocation drives a significant proportion of overall investment returns.
Second, that markets are inefficient and swing between periods of over- and under-valuation, and lastly, that they can exploit these circumstances to the benefit of their investors.
The NFB Ci Cautious Fund of Funds is a multi-asset low-equity fund, which means that it may invest in a spectrum of money-market, bond, property or equity assets and tends to display reduced short-term volatility. It aims for long-term capital and income growth while maintaining a low risk profile.
The fund has a maximum equity exposure of 40% and a maximum property exposure of 25% at all times and complies with the regulation governing retirement funds, which limits offshore exposure.
According to Marais, the strength in the rand has presented an opportunity to ensure the fund’s offshore allocation is as close as possible to its current maximum of 25%, which “may not pay off in the next year if the political, and thereby economic, environment continues to improve”.
“Assuming healthy local and global equity markets, returns for the fund could come in at around inflation plus 2% to 3% for the coming year, which would be satisfying, though it must be noted that NFB Asset Management does not believe in forecasting,” says Marais.
The offshore allowance for institutional funds, which would include this fund, was increased in the recent Budget Speech, from 25% to 30%, and Marais says “though this might be too aggressive an allocation for this fund, it will be fascinating to see how this plays out in the market”.
According to him, the political economy and its effect on the ratings agencies will be important in 2018. “If it goes against the country then inflation-linked bonds, for example, become more interesting; if it goes for SA then risk assets perhaps become a better play.”
Marais says fee compression and how it influences investment strategy will also be a key trend this year.
Why finweek would consider adding it:
According to the PlexCrown Fund Ratings’ Unit Trust Survey for the fourth quarter of 2017, this fund has 5 PlexCrowns (the maximum possible) and remains first out of 79 funds.
PlexCrown ratings give an indication of the quality of the investment team, investment processes, strategies and the risks assumed.
Recently, the fund also received two accolades at the Raging Bull Awards and was recently named the winner in its category in the 2018 Morningstar SA Fund Awards.
It has an excellent track record of protecting capital, on a total return basis, in 99% of rolling one-year periods and has outperformed its benchmark in three-quarters of rolling three-year periods.
This article originally appeared in the 15 March edition of finweek. Buy and download the magazine here.
