This Fund of Funds 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 Fund of Funds has no explicit house-view allocation given its peer-benchmark, and maintains a foreign allocation of at least 25%.

Over the five-year investment horizon of the Fund of Funds, SA equities (up 3.7% p.a.) have materially underperformed foreign equities (up 12.6% p.a.) and our expectation for this asset class, while SA nominal bonds (up 7.7% p.a.) and SA cash (up 7.2% 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.
This year, foreign equities (up 23.1%) have substantially outperformed SA equities (up 6.8%), while SA nominal bonds (up 10.3%) have outperformed both SA cash (up 7.3%) and SA inflation-linked bonds (up 2.6%). Within SA equities, industrials (up 11.0%) and resources (up 25.3%) have significantly outperformed financials (up 0.9%). 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 having decelerated).

The look-though equity allocation of the Fund of Funds at 64.1% 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. In contrast, Abax, Prudential and Tantalum all have domestic-only multi-asset mandates.

The remainder of the foreign allocation is made up of the underlying managers in the PPS Global Balanced Fund of Funds. 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, drawing on the broad investment universe of foreign managers we have access to.