Diversifying risk enables PSG fund to shine
PSG WEALTH GLOBAL FLEXIBLE FUND OF FUNDS
- Raging Bull Award for the Best (FSCA-approved) Offshore Global Asset Allocation Fund on a Risk-adjusted Basis (for performance over five years to December 31, 2020)
PSG Wealth’s offshore funds of funds are domiciled in Malta, but the manager selection and research is handled by its multi-management team, based in Gauteng. The PSG Wealth Global Flexible Fund of Funds is denominated in US dollars, with another version of the fund denominated in British pounds.
The fund delivered 11.6% a year, after fees, in US dollars for the five years to the end of 2020. This compares favourably with the 4.9% a year of its benchmark, the average of its flexible global fund peers.
A fund of funds invests in other funds instead of directly in assets such as equities or bonds. Its portfolio in December 2020 was evenly spread across six underlying funds.
Henko Roos, the head of manager research at PSG Wealth, answered the following questions from Personal Finance:
Please outline your investment philosophy/strategy regarding the fund, taking into account how you go about selecting underlying funds.
The objective of the fund is to provide long-term capital appreciation through active management of a diversified portfolio of unconstrained global multi-asset funds. The emphasis is on equities, but there is no specific limit on the asset classes.
As a multi-manager, our responsibility is manager selection and portfolio construction. We implement a best-in-class principle – we select the adequate number of funds in each risk-profile category that we believe will consistently deliver above-average performance, and leave the asset allocation and stock selection calls to the fund managers. To achieve this, we focus on identifying skilled managers with a consistent record. We then combine different but complementary styles in an overall portfolio aimed at achieving a consistent return profile, while managing risk and ensuring competitive fees.
To what do you attribute your fund’s outperformance over the past few years, and specifically during the pandemic?
Over the past few years, we have seen a strong rally in global equities, particularly in the US and, as such, our more aggressive strategies, which had higher exposure to this part of the market, succeeded. Stock selection remains a key component in what we look for.
Looking at 2020, we held part of the portfolio in strategies that were positioned conservatively leading into the year. These strategies added significant returns by limiting drawdowns in the first quarter.
As markets recovered, our more aggressively positioned strategies took advantage of various buying opportunities, resulting in strong upside capture in the latter part of the year. We attribute our success to getting the balance right between aggressive return-seeking strategies and those with defensive characteristics.
Were there any standouts in the portfolio?
Within a fund of funds structure, there are always winners and losers on a relative basis. Strategies that positioned more defensively in cash or high-quality instruments were clear winners in the first half of the year. As the year progressed and volatility declined, active manager flexibility shone through with their ability to capture attractive opportunities in a discounted market. By the year-end, winning strategies were those with resilient holdings, high active-share and strong security selection.
How are you positioning the fund for the possibly challenging times ahead?
One of the key strengths of our approach is that we do not need to regularly make changes to our underlying managers. By engaging constantly with them and understanding their positioning, we maintain our conviction in their ability.
With an expectation for slowing economic activity over the first half of the 2021, due to the increased restrictions, investors will likely need to look towards the second half of the year, where the hopes of vaccine roll-outs could potentially see more positive sentiment improving market outcomes.
Central bank stimulus will continue to put downward pressure on interest rates, leaving them lower for longer; therefore, government bonds will offer limited potential returns.
Equity markets, although volatile, still offer a better long-term outcome, and therefore the portfolio remains tilted to higher equity exposure.