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PSG FLEXIBLE FUND
Raging Bull Award for the Best Domestic Asset Allocation Flexible Fund – the top-performing fund on a risk-adjusted basis over five years to December 31, 2011
Investing in good quality shares, diversifying across the globe, and using share valuations to determine equity exposure ensured that, despite a difficult 2011, the PSG Flexible Fund won the Raging Bull Award for the best asset allocation flexible fund for the second year in a row.
Jan Mouton, the manager of the fund, says 2011 was a year of fewer opportunities locally and extreme share price movements offshore, but he achieved a return of 10.5 percent for his fund for 2011 and this contributed to the fund’s average annual return of 12.59 percent for the five years to the end of December, according to ProfileData.
On straight performance, the five-year return put the fund in second place among the 43 funds in the domestic asset allocation flexible sub-category.
However, Raging Bull Awards for asset allocation funds are based on the PlexCrown Ratings, which measure consistency of risk-adjusted performance over periods up to five years.
The PSG fund achieved five PlexCrowns and the highest score in the flexible asset allocation sub-category.
Mouton says the fund uses a bottom-up approach to asset allocation, investing in shares and listed property as long as these are attractive. It invests in cash when there are no more share opportunities and in bonds only if these are compelling.
“If we are unable to find exceptional businesses at low valuations (a low price relative to the expected company profits), we patiently wait in cash for the right opportunities,” he says.
The fund had a relatively high exposure to cash at the end of 2007, and this worked in the fund’s favour when equity markets crashed in 2008.
As share prices fell, the fund used its cash to buy high-quality shares, and it ran out of cash in March 2009 when global equity markets bottomed, Mouton says.
He says the fund enjoyed strong returns when the market recovered because it was in high-quality shares.
Over the past two years to the end of December last year, the fund’s cash holdings have again been high at around 28 percent of the fund as there have been fewer opportunities in the local market, Mouton says.
However, the fund did find some gems in the local market, he says, naming the likes of EOH and Sasol. During the year to December 2011 Sasol’s share price was supported by the depreciation of the rand against the US dollar and an increase in the oil price.
EOH is an information technology company that the fund bought at R5.46 a share in March 2009 and enjoyed a ride up to more than R29 a share.
Mouton says the fund is finding good opportunities offshore, and for much of the past year its offshore exposure has been close to the maximum for domestic funds: 25 percent.
The fund invests directly in offshore shares, and Mouton says he picked shares that avoided the financial crisis of 2008 and 2009, such as Berkshire Hathaway, the company of investment guru Warren Buffett.
Other quality shares the fund has owned include Microsoft, Dell and IBM in the US; Roche, the Swiss pharmaceutical company; ING, the Dutch banking group; UK retailer Tesco; and UK-based Capital Shopping Centres (formerly Liberty International).
The rand’s weakness last year also helped the fund to earn good returns on its offshore shares.
Mouton believes the PSG Flexible Fund’s investment risk is contained by its international diversification and its focus on quality shares. – Laura du Preez