Momentum Intl Equity Feeder comment - Jun 14
The Momentum International Equity Feeder Fund invests solely in the Momentum Global Equity Fund and has the highest expected risk and return profile of all the managed solutions. This is, to an extent, an asset allocating fund like the others, but the strategic asset allocation suggests a structural bias to equity. Over the quarter, the fund returned 3.4% net of all fees compared to a benchmark return of 6.4%. Over one, three and five years, the fund has added 28.78%, 24.75% per annum and 19.61% per annum respectively. Main contributors to relative performance over the quarter were the overweight to emerging market equity and the use of credit over government debt. The rand's depreciation to the US dollar (0.91% over the quarter, 7.7% over one year and 16.29% per annum over three years) also contributed positively to fund performance.
The main detractor from relative performance, in a period where both equity and bond markets added value, was the overweight to cash. While cash is presently a drag on portfolio returns, we believe that it will serve a valuable purpose in the portfolio as a store of value as and when interest rates start to rise.
The fund remains slightly underweight to developed equity markets, with an overweight position to emerging market stocks. This is a position that we have added to in recent months. Year-to-date, developed and emerging market equity returns are in line, whereas, in the first quarter, the latter was some way behind, demonstrating the catch-up that has taken place in the last quarter. The fund remains modestly overweight cash. Manager selection also weighed on performance over the quarter as the managers gave back some of the excellent outperformance generated in 2013.
Going forward, while there is greater optimism around the outlook for growth in the developed world; this brings with it the increased chance of tightening credit conditions as these economies recover. This quarter proved similar to other recent quarters in the sense that central banks continue to try to manage expectations within the market. However, their comments, given the level of scrutiny that they are placed under, sometimes serve to cause less certainty about the path of interest rate policy. The ultimate withdrawal of monetary stimulus, especially from these extraordinarily elevated levels, could have unintended consequences for investment markets and, as a result, we believe that investors should look to retain a prudent level of diversification in their portfolios. Overall, we believe that the fund is well positioned to take advantage of future opportunities in the markets as they present themselves.
Furthermore, while it is uncomfortable at the time, volatility provides valuation opportunities for disciplined investors and our overweight to cash provides a ready source of liquidity, which can be invested in opportunities as and when they arise.
The Momentum International Equity Feeder fund invests in a range of top performing offshore equity funds. It aims to provide offshore diversification, a hedge against rand depreciation, and steady capital growth over time.