NAV on 2019/11/14
|NAV on 2019/11/13
|52 week high on 2019/06/28
|52 week low on 2019/01/02
|Total Expense Ratio on 2019/03/31
|Total Expense Ratio (performance fee) on 2019/03/31
Old Mutual Unit Trust Managers (RF) (Pty) Ltd.
South African--Multi Asset--Low Equity
Prior to joining MacroSolutions, he was the Investment Strategist for South Africa at UBS South Africa for nine years. In his last two years at UBS, he was also responsible for the emerging EMEA Equity strategy. John has 12 years of work experience in financial markets in South Africa and London. In addition, he has seven years of experience as an economist in public and private sector capacities in Namibia and South Africa.
John joined MacroSolutions in June 2014 as a portfolio manager. As a member of the MacroSolutions team, he is responsible for managing conservative funds including the Profile Capital and Stable Growth Funds and the Old Mutual Real Income and Stable Growth Funds. John’s background as an investment strategist enables him to integrate top-down and bottom up analysis into portfolio construction.
Zain joined MacroSolutions in July 2015 as an investment analyst. In March 2018 he became co-portfolio manager of the Old Mutual Real Income Fund. In addition to this role, he is responsible for identifying 'between the gap' investment opportunities for MacroSolutions portfolios in areas like preference shares, convertible bonds and international assets. He also contributes to MacroSolutions’ overall asset allocation.
Prior to joining MacroSolutions, Zain was a Fixed Income and Quants Analyst at Old Mutual Investment Group’s fixed income boutique, Futuregrowth Asset Management, for three and a half years.
Old Mutual Real Income comment - Sep 19
The tale of the tape for the third quarter of 2019: Local equities fell 5% and local bonds returned nearly 1%, while global equities and bonds were approximately fl at and 1% higher respectively in US dollar terms, and the rand weakened by over 7% against the US dollar. Various measures have pointed to a broad-based slowdown in global economic activity, which was compounded by a re-escalation in trade tensions between the US and China during the quarter. In addition, the state of the UK political environment remains one of confusion with no clarity on the likely outcome. In response to the muted growth outlook and increased uncertainty, several central banks, including the US Federal Reserve, have clearly stepped off the brake and are slowly reapplying the accelerator. Time will tell if this is suffi cient to offset the uncertainty created by political developments. In the meantime, equity markets remained somewhat directionless, while industrial metals continued to come under pressure. Global bond yields moved lower again and precious metal prices rose as investors sought safe havens. Many sovereign bonds are once again trading on negative yields, while the US 10-year bond yield reached a low of 1.5% before unwinding a little towards the end of the quarter.
The South African economy has been and remains tied to the hip of the global economy. Hence the impact of slower global growth fi ltered through to South African markets and the currency. While a Chief Reorganisation Offi cer was fi nally appointed at Eskom during the quarter, visa restrictions were relaxed on several countries and President Ramaphosa announced his Economic Growth Advisory Council, progress on inducing a meaningful economic recovery has been slower than many expected. At the end of September, the President published his fi rst weekly newsletter – over the coming months this may shed further light on the focus of Government. The South African Reserve Bank trimmed interest rates by 0.25% in the quarter as infl ation remains well contained and growth anaemic.
The Old Mutual Real Income Fund aims to deliver an income that grows over time while protecting capital. Fund performance net of fees was in line with domestic bonds, but behind cash for the quarter. Over the last year, the fund returned 7.2%. This was ahead of infl ation of 4.5%, exceeding the fund’s target CPI + 1-2% net of fees.
While exceeding the real return objective, performance has been mediocre in the context of the solid returns delivered by core fi xed income assets. Over a year, the All Bond Index (ALBI) returned 11.5%, and domestic cash 7.3%. Ironically, only domestic infl ation-linked bonds (ILBs) lagged infl ation, returning 3.3%. Having benefi ted from an underweight to the asset class, we have subsequently added exposure and now hold a meaningful position of around 10% in the fund. This is as real yields have risen to 3.5% – high both in a global context increasingly dominated by negative real yields, and comparable to levels last seen in 2005. We like the dual characteristics of attractive real yield plus protection against potential currency weakness and subsequent pass-through to infl ation. We will look to add to our position into any further weakness.
The primary drag on performance over both the quarter and year has been the fund’s growth asset exposure, as both domestic property and equities continued to suffer at the hands of ailing domestic growth. While we will not add to the fund’s exposure without evidence of a more supportive profi ts environment, we think the bulk of the price adjustment is behind us. We are comfortable that the fund’s current position is low enough to maintain the capital preservation mandate of the fund, while providing diversifi cation to the portfolio.
The strategy of the fund looking forward is one of locking in a diverse portfolio of attractive domestic real yields. The bulk of this is in domestic bonds and high quality domestic credit, with the modifi ed duration of the fund slightly above benchmark. The fund’s average yield is currently 8%, ahead of our infl ation expectations of around 5% for the next year. Foreign exposure remains low, primarily serving as a hedge against our domestic growth asset weight. Global bonds, offering negative real, and increasingly zero nominal yields, are currently a vehicle for saving destruction, in addition to having high capital risk. We hold no duration in this asset class.
The fund aims to provide an income that grows in line with inflation, while sustaining the level of capital over time and minimising any losses over a 12-month period. The portfolio manager actively manages asset allocation to take advantage of changing market conditions. This fund is suited to investors who can accept a lower initial income in return for the expectation of inflation-matching growth in income over the recommended investment term, while maintaining the value of their capital. It is suitable as a low-risk investment in retirement. The fund invests in the full spectrum of fixed interest investments. The fund may invest up to 25% of its portfolio in selected listed property shares and up to 10% in equities. The fund may gain exposure to foreign assets up to a maximum of 30% of its portfolio (with an additional 10% for African ex-SA investments). Derivatives may be used for efficient portfolio management purposes.