Fund selection: When to hold ‘em and when to fold ‘em

Wade Witbooi

Market conditions are subject to constant change, influenced by global economic trends, geopolitical events, investor speculation and unforeseen crises. These factors influence fund performance.

Due to external factors beyond a portfolio manager’s control, funds that have outperformed in the past year may not necessarily sustain their success in the following year. Choosing consistently outperforming funds is a formidable challenge due to the dynamic and unpredictable nature of financial markets. Portfolio managers often have to take into account many factors that make identifying and maintaining a winning investment strategy complex, highlighting the challenge of separating genuine skill from short-term luck.

The vast number of funds available provides allocators with many choices, adding another layer of complexity and room for selection error. With numerous options spanning various asset classes, categories, investment styles and philosophies, selecting the right fund requires in-depth research and a thorough understanding of the fund manager’s objectives and definition of risk.

South African Multi-Asset Funds

South African Multi-Asset High Equity (Balanced) funds, characterised by their diversification among multiple asset classes, have played a crucial role in the local investment landscape over the years. Balanced funds typically invest in a blend of asset classes, with risk assets forming the bulk of the allocation over time. They tend to deliver a more stable performance than single asset class funds, because of the diversification from investing in multiple asset classes. Research conducted by the Sanlam Investments client research team shows the dominance of South African Multi-Asset funds from Q4 2013 to Q4 2023 in the chart below. Their total net assets were 48% of the total Collective Investments Scheme (CIS) industry in 2013 and increased to 55% in 2023, with assets under management (AUM) of over R1.9 trillion at the end of Q4 2023. This is an impressive figure compared with the CIS industry total AUM of R3.54 trillion for 2023. Their compounded annual growth rate was 11.4% over this period.

Source: ASISA, 31 December 2023

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