This FoF targets outperformance of the ASISA High Equity peer-group over rolling five years. Diversification is achieved on a manager level across both South African and foreign markets. The FoF has no explicit house-view allocation given its peer-benchmark, and typically maintains a foreign allocation of at least 25%.

Over the five-year investment horizon of the FoF, SA equities (up 3.4% p.a.) have materially underperformed foreign equities (up 13.1% p.a.) and our expectation for this asset class, while SA nominal bonds (up 8.3% p.a.) and SA cash (up 6.8% p.a.) have both delivered returns that comfortably exceeded CPI (averaging 4.9% p.a.). The poor performance of SA equities has resulted in most funds in this sector not meaningfully outperforming inflation over this period.

Year-to-date, foreign equities (up 22.5%) have substantially outperformed SA equities (up 1.4%), while SA nominal bonds (up 8.4%) have outperformed both SA cash (up 5.2%) and SA inflation-linked bonds (up 3.5%). Within SA equities, industrials (+11.1%) and resources (up 10.5%) have significantly outperformed financials (down 1.6%). Large cap rand hedge counters with significant offshore earnings have driven the industrial sector, while resources have been driven by spot commodity prices remaining higher than expected (despite global economic growth continuing to decelerate).

The look-though equity allocation of the FoF at 62.4% at quarter end reflects a relatively conservative aggregate positioning of the underlying managers that make up the fund. While we made no manager changes over the quarter, we are increasing our allocation to 36One who has allowance to invest in both SA and foreign markets, and is notably underweight equities currently. In contrast, Abax, Prudential and Tantalum all have domestic-only multi-asset mandates, and a relatively higher allocation to equities.

The remainder of the foreign allocation is made up of the underlying managers in the PPS Global Balanced FoF. This allocation has been a strong contributor to performance over the past three years (i.e. since we invested) and year-to-date. Here we invest in our best foreign investment view that we anticipate will outperform the foreign allocation of SA managers over time, given the wider investment universe of foreign managers we have access to.

Quarterly Commentary

This is a multi-managed fund of funds with active manager selection. The managers in the fund are skilled stock pickers and asset allocators, and we expect them to take high conviction positions over time. The fund is benchmarked against its peers and delivered pleasing performance this quarter, with both the domestic and international components of the fund contributing to outperformance relative to its peer group. Over one year the fund has performed particularly strongly driven by offshore, which boosted two and three-year performance.

PPS Balanced is on par with its investment objective over the stated five-year investment horizon. As at quarter-end, the fund had look-through equity exposure of 61.5%, which is slightly lower than last quarter, leaving ample room for the managers to capitalise on any potential opportunities. There were no manager changes during the quarter.