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It’s no secret that markets are tough right now. Investors bruised by enormous volatility experienced in the 2008-09 global financial crisis are largely skittish again following the August sell-off, while the placement of new money in the market is hardly a compelling proposition for many.
But that’s just part of the problem. The question of where to invest it, is equally tricky.
“Pre-2008 it was relatively easy for asset managers to promise returns of CPI+5%, but in more recent years finding appropriate cheap assets has become extremely difficult,” says Eldria Fraser, CEO of Prescient Investment Management.
“Pre-2008 interest rates and dividend yields were considerably higher, and we also went through a period of synchronised growth,” she explains. “Thus earnings growth was strong and combined with lower inflation, resulted in most investors achieving good returns net of inflation.
“Currently, interest rates at around 6% are at a multiple decade low with dividend yields coming in at around 2.5%. With inflation moving up towards 6% as well, one needs to be pretty shrewd to achieve inflation-beating returns.”
Fraser believes that the answer to this dilemma is Prescient’s Balanced Fund, which seeks to outperform headline CPI. Managed by Guy Toms and Liang Du, she points out, its key approach is to grow returns steadily over time and minimise losses.
It has generated a highly impressive total return of 221% between inception in July 2003 and 2011. This amounted to outstripping inflation of 59% over the same period. The Fund has also delivered a positive return in 67% of the months concerned.
When you do what you say, a hard sell is not needed. A large part of the business growth is ascribed to building a consistent track record. The institutional sales team, consisting of Esmarie Strydom, Mvu Marashule and Monei Pudumo-Roos, has a service-orientated culture. They see the growth areas in the market as Liability Driven investments, Tactical Asset Allocation, local and African equities, global portfolios and balanced funds. In the latter, the risk of switching between asset classes is managed by the asset manager.
The Balanced Fund is one of the investment house’s many global balanced offerings; another being the Positive Return Fund. Says Guy Toms: “The Balanced Fund is a particularly appropriate investment vehicle for investors in the early and mid-stages of their working cycle. The Positive Return Fund is more appropriate for those in the later stages of the working cycle.”
Toms emphasises, however, that both portfolios are geared to preservation of capital. The difference between them is that the Positive Return portfolio is more conservative than the Balanced Fund portfolio. He points out that Prescient’s asset allocation process is different to most others in the market. “Most managers tend to forecast markets. Prescient looks at what’s currently priced in – the better the yield, the more the value. It follows that one needs to buy those assets offering good value and low volatility, not those of poor value and high volatility.”
The Balanced Fund is managed to eliminate downside risk, with capital preservation being the focus. “This should not be confused with a hedge fund; this is a balanced fund with protection,” Prescient Executive Director and Head of Marketing, Sharon Bailey, points out.
Toms notes that Prescient only uses transparent, regulated derivative instruments traded on the SAFEX and Yield-X exchanges. Toms rejects any notion that the Balanced Fund erodes long-term investment return due to the cost of protection. First, he says, it’s used for efficient portfolio management and not used permanently, and second, cost is prudently managed. Besides, the cost of losing capital far outweighs the cost of an astutely managed protective strategy.
Liang Du points out that the Balanced Fund is not restricted to derivative protection in its quest to curb potential losses. It can also use gold exposure, serving as a hedge against uncertainty, inflation and falling markets, and it can hold non-rand assets. The latter provides protection against falling equities in cases of rand weakness, when the investors sell equity and derisk in general.
But that’s just part of the problem. The question of where to invest it, is equally tricky.
“Pre-2008 it was relatively easy for asset managers to promise returns of CPI+5%, but in more recent years finding appropriate cheap assets has become extremely difficult,” says Eldria Fraser, CEO of Prescient Investment Management.
“Pre-2008 interest rates and dividend yields were considerably higher, and we also went through a period of synchronised growth,” she explains. “Thus earnings growth was strong and combined with lower inflation, resulted in most investors achieving good returns net of inflation.
“Currently, interest rates at around 6% are at a multiple decade low with dividend yields coming in at around 2.5%. With inflation moving up towards 6% as well, one needs to be pretty shrewd to achieve inflation-beating returns.”
Fraser believes that the answer to this dilemma is Prescient’s Balanced Fund, which seeks to outperform headline CPI. Managed by Guy Toms and Liang Du, she points out, its key approach is to grow returns steadily over time and minimise losses.
It has generated a highly impressive total return of 221% between inception in July 2003 and 2011. This amounted to outstripping inflation of 59% over the same period. The Fund has also delivered a positive return in 67% of the months concerned.
When you do what you say, a hard sell is not needed. A large part of the business growth is ascribed to building a consistent track record. The institutional sales team, consisting of Esmarie Strydom, Mvu Marashule and Monei Pudumo-Roos, has a service-orientated culture. They see the growth areas in the market as Liability Driven investments, Tactical Asset Allocation, local and African equities, global portfolios and balanced funds. In the latter, the risk of switching between asset classes is managed by the asset manager.
The Balanced Fund is one of the investment house’s many global balanced offerings; another being the Positive Return Fund. Says Guy Toms: “The Balanced Fund is a particularly appropriate investment vehicle for investors in the early and mid-stages of their working cycle. The Positive Return Fund is more appropriate for those in the later stages of the working cycle.”
Toms emphasises, however, that both portfolios are geared to preservation of capital. The difference between them is that the Positive Return portfolio is more conservative than the Balanced Fund portfolio. He points out that Prescient’s asset allocation process is different to most others in the market. “Most managers tend to forecast markets. Prescient looks at what’s currently priced in – the better the yield, the more the value. It follows that one needs to buy those assets offering good value and low volatility, not those of poor value and high volatility.”
The Balanced Fund is managed to eliminate downside risk, with capital preservation being the focus. “This should not be confused with a hedge fund; this is a balanced fund with protection,” Prescient Executive Director and Head of Marketing, Sharon Bailey, points out.
Toms notes that Prescient only uses transparent, regulated derivative instruments traded on the SAFEX and Yield-X exchanges. Toms rejects any notion that the Balanced Fund erodes long-term investment return due to the cost of protection. First, he says, it’s used for efficient portfolio management and not used permanently, and second, cost is prudently managed. Besides, the cost of losing capital far outweighs the cost of an astutely managed protective strategy.
Liang Du points out that the Balanced Fund is not restricted to derivative protection in its quest to curb potential losses. It can also use gold exposure, serving as a hedge against uncertainty, inflation and falling markets, and it can hold non-rand assets. The latter provides protection against falling equities in cases of rand weakness, when the investors sell equity and derisk in general.
