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SA’s top Reg 28 compliant unit trusts

The best performers over the last five and ten years.

Cape Town – Asset allocation unit trusts have come to dominate the local industry. The latest statistics from the Association for Savings and Investment SA (ASISA) show that there is more than twice as much money invested in South African multi-asset funds as in local equity funds.

The majority of this money is placed in funds that meet the requirements of Regulation 28 of the Pension Funds Act – a provision that aims to limit the levels of risk to which investors are exposed.

Broadly speaking, to be Regulation 28 compliant funds may not invest more than 75% in equities, 75% in corporate bonds, 25% in property, 10% in commodities and a total of 25% in foreign assets. There are also limits imposed on how much exposure funds may have to a single issuer or entity.

Five year performance

Over the five year period from 1 January 2009 to 31 December 2013, the top Regulation 28 compliant funds did extremely well in pretty difficult market conditions. In an environment where CPI averaged around 5.5%, the top funds delivered returns well above that:

South Africa’s top performing Regulation 28 compliant funds to

31 December 2013

Fund

5 year performance (annualised)

TER

Coronation Balanced Plus Fund

17.98%

1.63%

AS Forum MET Aggressive FoF

17.43%

3.61%

Southern Charter MET Growth FoF

17.23%

2.54%

SIM Managed Aggressive FoF

17.12%

1.19%

MET Odyssey Balanced FoF

17.10%

2.17%

Foord Balanced Fund

17.09%

1.73%

Discovery Balanced Fund

16.90%

1.56%

Stanlib Balanced Fund

16.76%

1.24%

Investment Solutions Multi-Manager Balanced FoF

16.57%

1.85%

Prudential Balanced Fund

16.54%

1.57%

PSG Balanced Fund

16.23%

1.79%

Momentum Best Blend Balanced FoF

16.04%

2.29%

Autus MET Balanced FoF

16.02%

2.74%

Personal Trust Managed Fund

15.95%

1.40%

PSG Konsult Moderate FoF

15.92%

1.54%

Source: Morningstar

By way of comparison, the FTSE/JSE All Share Index delivered 19.93% over the same period. While all of these funds come in below that figure, this would be expected of unit trusts that cannot hold more than 75% of their portfolios in listed equity.

It is interesting that the majority of these funds – eight out of fifteen – are funds of funds. But a quick analysis reveals that they follow very different approaches in how they choose their underlying investments.

The SIM Managed Aggressive FoF holds only other SIM funds, with exposure to 16 such funds in total. In contrast, the Investment Solutions Multi-Manager Balanced FoF splits its portfolio equally between just three other funds, all of which are in the same category as itself. The PSG Konsult Moderate FoF follows this same strategy, but with investments in six underlying funds.

The rest follow a far more diverse approach, with holdings in between 10 and 18 underlying funds, most of which are asset-specific.

Asset Allocation

When analysing top performing multi-asset funds it is always interesting to examine how they split their portfolios between different asset classes. The below chart illustrates the holdings of each of these 15 funds:

Asset Allocation of Top-performing Regulation 28 Compliant Funds


Source: Fund fact sheets

There is a general pattern to these holdings, which suggests that much of the out-performance from individual funds is due to their stock selection. However, a few things do stand out.

Giving respect to the Coronation Balanced Plus Fund as the unit trust on top of the pile, it is notable that it currently has the lowest local equity holding of all 15 of these funds at 30.5%. The PSG Balanced Fund is next lowest at 35%.

This may be a sign that these fund managers do not see much value on the JSE at current valuations. They also have the largest cash holdings amongst this group at 27.1% and 28% respectively, and both are pushing the 25% limit on international exposure.

Such large cash positions generally suggest that fund managers do not see much opportunity to deploy their money in the market at the moment.

In fact, all of these funds have fairly tepid views on local stocks, with most of them holding below 50% of their portfolios on the JSE. The Southern Charter MET Growth FoF carries the most exposure to South African-listed equities at just 56%.

Another fund that stands in out for its difference is the Personal Trust Managed Fund, which holds only 7% of its portfolio in international equities when most of the rest have high foreign holdings. It is however still pushing the 25% limit on offshore exposure, as it has 5% of its assets in foreign cash, 5% in foreign property and 7% in foreign corporate bonds.

Ten year performance

Taking a slightly longer-term view, it is noteworthy that a number of these funds have delivered very consistent performance since 1 January 2004. Seven of the funds that appear in the top 15 over five years have been around long enough to have a ten year track record. Of those, only one – the Momentum Best Blend Balanced FoF – does not appear in the list of the top 15 funds over ten years. It rates 16th.

This should give investors a fair deal of reassurance. Despite the ups and downs of the market, a well-balanced, diversified portfolio will deliver reasonably consistent returns.

The Coronation Balanced Plus Fund is the prime example of this, as it comes out tops on both lists:

South Africa’s top performing Regulation 28 compliant funds to

31 December 2013

Fund

10 year performance (annualised)

TER

*Coronation Balanced Plus Fund

18.36%

1.63%

*Foord Balanced Fund

18.08%

1.73%

Investec Opportunity Fund

17.43%

1.32%

Allan Gray Balanced Fund

16.97%

1.78%

Investec Managed Fund

16.68%

1.32%

*Prudential Balanced Fund

16.55%

1.57%

SIM Balanced Fund

16.43%

1.27%

*Stanlib Balanced Fund

16.13%

1.24%

Momentum Balanced Fund

16.09%

1.14%

*Investment Solutions Multi-Manager Balanced FoF

15.80%%

1.85%

Old Mutual Balanced Fund

15.59%

1.31%

*PSG Balanced Fund

15.56%

1.79%

Old Mutual SYmmETRY Balanced FoF

15.51%

2.16%

Absa Balanced Fund

15.09%

1.14%

Nedgroup Investments Managed Fund

14.79%

1.30%

Source: Morningstar

*Funds that appear in the top 15 over both five and ten years.

In contrast to the five year list, there are only three funds of funds on this table. It is also worth noting that the TERs of the funds on the list of top performers over ten years are, on average, much lower than those of the leading funds over five years.

On the longer-term list, only one has a TER of over 2.0% and six others come in at over 1.5%. Within the top performers over five years, however, there are five funds with TERs over 2.0%, one of which is charging over 3.0%. A further six come in at over 1.5%.

To some extent this is because of the higher number of funds of funds that appear on the first list, as these unit trusts do have an extra layer of fees. However, it is perhaps also worth considering how higher fees do have a greater drag on returns over longer periods. It is not only returns that are compounded.

Finally, the Absa Balanced FoF deserves a mention as it is the only multi-asset medium equity fund that makes it onto either list. This is notable because its classification means that it is restricted to having no more than 60% of its assets in listed equities and 25% in property, so it is not able to take as much advantage of strong stock market performance as those in the high equity category.

For more, visit Moneyweb’s Click-a-unit trust/ETF tool.

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