Risk profiling eases investor fears during current market volatility
“The world is certainly not in a pretty place at the moment; global economic growth has been revised lower, the European sovereign debt crisis threatens to intensify and widen its net of casualties and the fiscal health of the US remains in a fragile stat
“Within these volatile market conditions, it is important for investors to recognize that in the long term markets are driven by corporate fundamentals and hence having a sound investment philosophy and a structured, unemotional investment approach is vital to help navigate through the murky waters.”
SIM’s Managed Solution Funds – which recently surpassed R3.8-billion assets under management – are five multi-asset class fund-of-funds structured according to risk profiling. They hold different weightings in SIM’s core unit trusts, depending on the risk profile of the fund-of-fund, and range from a conservative or cautious offering for the more defensive investor looking for high income yields and modest capital gain to a more moderate to aggressive risk profiled fund for the investor who is willing and able to tolerate higher risk in their aim to achieve higher returns over the longer term.
Narsingh explains that through these range of portfolios, clients are able to gain access to SIM’s top fund managers via a one stop range of funds at a very competitive fee. These specialist fund managers include Ricco Friedrich and Claude van Cuyck on the SIM Value Fund, Patrice Rassou on the Sanlam General Equity Fund, Philip Liebenberg who manages the SIM Active Income Fund and Kokkie Kooyman who heads up the SIM Global Team.
The funds are strong performers with a five year track record – thanks to sound structures and diversification through asset allocation. For example, since inception in August 2006 to 30 November 2011, the Managed Aggressive Fund of Fund returned just short of 71.5 percent. Narsingh says much of this performance took place during the 2008 global financial crisis. “The funds were well weighted in lower risk assets during the crisis which helped boost performance.”
On average R800-million has been attracted annually by these funds with total asset value currently just over R3.8 billion. Narsingh, who recently took over the management of the funds, says SIM Managed Solutions will continue to stick to its successful investment philosophy under her watch. She will work jointly with SIM chief investment officer Gerhard Cruywagen to determine the underlying fund construction of the business’s five fund-of-funds.
Finding value for every risk profile
Narsingh says markets are once again experiencing the kind of volatility that we saw during the credit crises of 2008. Based on long run, through the cycle, normalized company earnings and valuation metrics, SIM sees value in SA equities and at the time of writing, was looking to close their underweight position in local bonds from local cash. She says, “In the longer term, there are returns to be had from equities, so it pays to have them in the funds across all the risk profiles, albeit at different weightings. We have been cautiously increasing our equity exposure as market prices drifted lower and as our in-house determined valuation assessment of this asset class showed it to be offering a reasonable upside to intrinsic value.”
Looking to offshore assets, SIM sees global equities especially in select international markets, offering better relative value to all other global asset classes. We view European equities, including the UK, as cheap. “These markets are certainly trading at attractive levels if you consider longer term measures such as price to book and price to normalized earnings ratios. So while there are still concerns there, they are looking cheaper than we’ve seen them in a long time even when compared to local equities.”
Offshore bonds are deemed too expensive. The current real return on offer from developed market bonds does appear too low given our long run expected inflation in these markets. As regards the cash component within the SIM Managed Solutions Funds, cash on a see-through basis consists of money market instruments through the Sanlam Money Market Fund as well as some yield enhancing instruments through the SIM Active Income fund and the SIM Enhanced Yield fund which have slightly longer dated paper and selective primary credit placements as some of their underlying investments. “We’ve got some high quality instruments as part of our cash holdings, and are getting enhanced cash returns from them,” concludes Narsingh.
