Domestic online funds performance and positioning

The three domestic multi-asset solutions delivered positive absolute returns over the three
months ended 31 March 2024 despite a tough quarter for domestic assets. Allocations to
money market instruments and corporate bonds buoyed the fixed income building block,
providing support as domestic government bonds detracted from returns. The equity
component detracted from returns following a tough quarter for domestic equities. Stock
selection within real estate was a positive contributor to absolute performance. Sun
International, AECI and Discovery were among the largest detractors from returns, while
AngloGold Ashanti, Raubex and AVI helped limit losses.

The PSG IM Opportunity Equity Fund of Funds also experienced a tough quarter as
domestic equities faltered, with our underlying managers’ preference for SA Inc shares
detracting from performance on both an absolute and a relative basis. Overall, they
continue to see opportunities domestically, citing attractive valuations and a preference for
businesses with robust balance sheets in their security selection. 

Table 1: Asset class returns in rand terms

Table 2: Fund performance versus sector average

 

Sector and asset allocation
No changes were made to the underlying funds used in the domestic solutions. In the PSG
IM MA Income FoF, our underlying fixed income managers continued to extend duration,
trimming exposure to the shorter end of the curve. Allocations to offshore bonds ticked
lower quarter on quarter, at the expense of offshore cash. The portfolio generated an
absolute return over the quarter and has continued to outperform peers since inception.

The equity building block used in both the Cautious and Growth FoFs detracted from
absolute returns, as security selection within industrials and financials detracted the
most from returns. AECI, Remgro and Discovery were among the largest detractors from
performance. Selected resource and construction counters helped mute losses, with
AngloGold, WBHO, Raubex and Anglo American adding value over the quarter. Despite
the tough quarter, the Cautious and Growth FoFs have continued to outperform relative to
peers over their respective recommended minimum holding periods and since inception.

The underlying managers in the Opportunity Equity FoF continue to favour domestic
industrials and financials given attractive valuations of their opportunity sets. Allocations
to domestic real estate ticked higher as the sector added value over the quarter. Despite
a positive March for the underlying funds, the solution ended the quarter in the negative
in absolute terms following a negative January and February for the underlying managers
used in the portfolio. All Weather was the top performer over the quarter, while Perpetua
detracted the most. 

Table 3: Local FoF composition (%)

 

PSG Investment Management (IM) Global Flexible Dollar Fund
The PSG IM Global Flexible FoF (USD) had a slower 3-month return trailing the sector
by 0.7%. However, it still delivered a positive absolute return of 2.5%. Looking to the
longer term, the performance remains more resilient through a full market cycle given
the return generated by the fund over its 7-year recommended holding period. Over
the quarter, Ninety One Global Macro Allocation Fund was the biggest detractor from
fund performance – mainly due to its developed market bond exposure as yields remain
higher for longer, a view not commonly held by the market coming into this year. The fund
has seen an increase in equity exposure, allocating to US, Chinese, South Korean and
Taiwanese equities. Hedges are held on European equities; however, these were trimmed
in favour of higher equity allocations overall. Veritas Global Real Return Fund was the top
performer over the quarter, as they managed their short positions and harnessed alpha
as equities rallied. Over the quarter, the PSG Global Flexible Fund, a value manager, was
added to the solution. The fund’s role will be to add alpha through its differentiated security
selection relative to incumbent underlying managers, guided by the fund manager’s focus
on evaluating a company’s 3Ms (moat, management and margin of safety). Following this
addition, we believe the solution is better positioned to add value over its recommended
holding period.

Table 4: Relative ranking