Fund Focus

PPS Balanced Fund of Funds

PPS Balanced Fund of Funds, as its name suggests, is a multi-asset portfolio. This means that rather than focus on a single asset class, such as equity or bonds, The Fund invests across the asset class spectrum.

Benefits of investing in a multi-asset portfolio

The main benefit of a multi-asset portfolio is its broader investable universe, which allows for enhanced diversification benefits. A further benefit is the ability to dial risk exposure up or down depending on market conditions, by altering the mix of growth assets compared to income-generating assets.

The Fund, given its multi-manager construct, takes these benefits a step further by diversifying across managers to further reduce risk, without sacrificing returns. This is evident in the Fund’s exceptional performance track record.

The Fund was launched in 2011 with the explicit goal of outperforming the average ASISA Multi-Asset High Equity category fund, over rolling five-year periods. Not only has it achieved this 100% of the time since its inception; but it also ranks top quartile in its ASISA category over three, five and seven years.

This is testament to our market-leading manager research and portfolio construction processes, which we pride ourselves on. PPS Balanced Fund of Funds leverages off our in-house investment framework that identifies and assesses managers through ongoing qualitative and quantitative due diligence, by a dedicated and skilled team of professionals.

The custodians of our research process are a diverse team of experienced and highly qualified investment professionals, who spend a considerable amount of time engaging with underlying managers as well as the broader universe.

Commitment to our systematic process and expert knowledge of portfolio construction and monitoring accumulated over decades of work have enabled us to deliver exceptional returns in this actively managed fund of funds, which is a combination of high conviction SA and foreign managers.

Fund structure

The Fund is designed to provide a well-diversified, Regulation 28 compliant multi-managed solution that invests across South African and foreign markets. Specifically, the Fund is a blend of four multi-asset strategies, three South African and one global. (Combining multi-asset strategies is our preferred approach when it comes to constructing funds that are trying to outperform a peer benchmark.)

The Fund currently targets a two-thirds holding in three South African multi-asset strategies and one-third in a global multi-asset strategy. The SA multi-asset managers are Abax, Truffle, and 36One, while the global multi-asset strategy is the PPS Multi-Managers.

The three SA managers apply their own strategic and tactical asset allocation methodologies. Our in-house asset allocation opinion is expressed in the global multi-asset strategy, which encapsulates our foreign best-investment view.

This year, the foreign component of the Fund has been the largest contributor to performance, given the relative outperformance of foreign asset classes compared to local. Foreign equity markets have advanced on better-than-expected economic data, as growth has remained resilient alongside steady disinflation. This has raised hopes that Central Banks will soon lower interest rates.

Although consensus has shifted more in favour of the worst now being behind us, we are more circumspect regarding economic prospects. Though we have been early in turning defensive in the global balanced portion of the Fund, we still view economic risks as skewed to the downside. Our overarching view is the lagged effect of restrictive monetary policy around the world will progressively impact the real economy, and Central Banks will be reluctant to cut rates in the face of sticky, above-target inflation rates.

Fund positioning

As a result, we remain conservatively positioned in our foreign equity holding, instead favouring cash, where yields are at extremely attractive levels. We have also been incrementally establishing a global bond holding, which we expect to continue doing as bond yields progressively ratchet higher. We anticipate being patient in waiting for the economic cycle to run its course before once again upweighting foreign equity.

The Fund is cautiously positioned, in line with our underlying fund managers. On a combined basis, the Fund’s SA equity exposure is at a low 34%, while foreign equity is at 19%. This leaves significant scope for the managers to increase equity exposure once the risk-reward trade-off improves.

Our outlook

The outlook for the Fund is as promising now as it always has been, and perhaps even better given the increased Regulation 28 foreign limit. Although valuations in SA are indeed attractive, the breadth of choice in foreign markets is far superior, and we welcome the increased foreign allowance. We expect the foreign component of the Fund to continue to increase from the current level of 35% as opportunities present themselves.

Beyond ensuring the asset class mix remains appropriate, our Investment Team remains equally committed to maintaining the right mix of managers, to ensure our flagship Balanced Fund of Funds remains among the best in its class.