DIVERSIFIED MULTI-ASSET FUNDS BRING STABILITY IN AN UNCERTAIN WORLD

Article by Prescient Investment Management Ltd. 

In the current environment were global market uncertainty and political risks impact investment returns, it is pretty stressful selecting which type of unit trust to invest in to achieve your investment objectives. With that in mind, a viable option should be multi-asset funds, which target long-term real returns that are more stable compared to single asset funds. 

These funds are compliant with Regulation 28 of the Pension Funds Act and offer a wide risk spectrum to investors depending on their risk appetite. Significant diversification benefits are achieved as different asset classes and currencies are blended together. Statistics released by the Association for Savings and Investment South Africa (ASISA) show that the unit trust industry has cottoned on to this, favouring the funds in the ASISA Multi Asset High Equity category in particular.

Within this category, the Prescient Balanced Fund has just surpassed three years of existence, in which time it has performed particularly well. As at 30 June 2017, it ranked in the first quartile over three months, twelve months as well as the period since its inception on 31 May 2014. The chart below is based on cumulative monthly performance since the Prescient Balanced Fund’s inception and shows superior outperformance relative to its category average.

Source: Morningstar

In a similar vein, the Prescient Balanced Fund has consistently outperformed its category average on a rolling twelve month basis.

Source: Morningstar

Remarkably, the Fund has returned 4.85% year-to-date and 7.08% per year since inception, while peer average returns over the same periods were 2.47% and 5.03% respectively. Despite its impressive performance record, the Prescient Balanced Fund is also the cheapest fund in the ASISA Multi Asset High Equity classification, with a total expense ratio (TER) of 0.55% and a total investment charge (TIC) of 0.58% a year. 

On a comparative basis, Prescient’s TER of 0.55% compares very favourably to the average categories TER of 1.82%, which consists only of funds in the category with at least a three year track record. 

In other circumstances, a 1.27% fee difference could possibly be overlooked. However, in the current low performance environment, investors need to scrutinise charges as expensive performance fees in many circumstances result in negative net of fee returns when gross returns were initially positive. Put differently, fees detract from fund performance and that determines how much cash is left at the end of the investment time horizon. 

Source: Morningstar and Prescient Investment Management

The future is uncertain and of that, we are sure. However, paying lower fees is one way of ensuring better returns and this is illustrated in the above chart, which is based on an initial investment of R1 million returning 6.5% per annum for five years, before fees. 

The Prescient Balanced Fund is a passively managed fund that offers a diversified mix of assets and geographic exposure. Accordingly, 55.25% of the fund is exposed to local equities and 9.75% to global equities. Similarly, 24.75% is invested in local interest-bearing assets while 5.25% is exposed to global interest-bearing instruments. The remaining 5% is invested in local property.  The Fund targets returns of inflation plus 5% to 6% a year over the long-term.  

The Fund has been a star performer and its investment strategy has placed it squarely in the top quartile of comparable peers.