Bateleur Flexible Prescient Fund
Raging Bull Award for the Best South African Multi-asset Flexible Fund on a risk-adjusted basis over five years to December 31, 2015
Taking advantage of the “easy money” environment globally, while avoiding shares tied to the ailing South African economy, proved a winning strategy for the Bateleur Flexible Prescient Fund.
The fund returned 20.18 percent a year over the five years to the end of 2015, according to ProfileData, and was ranked second out of 44 funds in the South African multi-asset flexible sub-category on straight performance. On risk-adjusted performance over the period, the fund out-performed its peers, receiving five PlexCrowns.
The fund, which was launched in 2010, has a benchmark of the Consumer Price Index plus four percent.
Although the fund aims to deliver inflation-beating growth over the medium to long term, fund manager Kevin Williams says protecting investors’ capital is a priority when markets are down. As a flexible fund, it can mitigate risk by diversifying across all the asset classes; in particular, by increasing the fund’s exposure to cash. In addition, Williams says the fund will sell out of a share once it has reached what he believes is its fair value, rather than riding the share’s momentum.
Bateleur Capital does not regard itself as either a value or a growth manager. It places a strong emphasis on individual stock analysis, but also on understanding the drivers of the domestic and global economy. Williams says the necessity of taking both a bottom-up and top-down view has been apparent since the 2008 global financial crisis, because the subsequent quantitative easing (QE) programmes have been a key driver of equity markets.
He says the fund’s superior performance over the past five years has been the result of it being positioned for a slowing South African economy, declining commodity prices and a depreciating rand against developed-market currencies. As a result, the fund limited its exposure to companies whose fortunes depend on the local economy, while it favoured companies that generate a significant portion of their revenues offshore, dual-listed companies and direct offshore holdings. It also had a very low exposure to shares linked to the commodity market.
He says the fund’s exposure to bonds has historically been low, not only because the fortunes of domestic bonds are tied to the health of the South African economy, but also because bond yields were unattractive relative to risk and the earnings yields from equities.
At the same time, low interest rates and the various QE programmes have made developed-market equities attractive, and the fund’s high exposure to these shares contributed to its out-performance, Williams says.
Looking ahead, Williams says the fund will adopt a more conservative positioning. This is necessitated by the slowing Chinese economy, tightening global liquidity and growth shares being at extreme levels versus value shares.
He says, in South Africa, there are additional factors that favour a “risk off” investment strategy. These include the possibility that the country will go into recession, the possibility of its sovereign debt being given a sub-investment-grade rating, a weaker rand, high inflation, higher interest rates, and the lack of clear policy direction.
Core equity holdings will be with companies that are expected to grow revenue and earnings organically, irrespective of economic conditions, and that are suitably priced for this growth.