Flexibility and risk-aversion put Absa on top

By Martin Hesse Time of article published Feb 10, 2021

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  • Raging Bull Award for the Best South African Multi-asset Equity Fund on a Risk-adjusted Basis (for performance over five years to December 31, 2020)
  • Raging Bull Certificate for the Best South African Multi-asset Low-equity Fund on a Risk-adjusted Basis (for performance over five years to December 31, 2020)

The Absa Inflation Beater Fund is a conservatively managed low-equity multi-asset fund, targeting a stable, above-inflation return for its investors. It achieved that admirably over the past five years, delivering 7.82% a year and beating its benchmark of Consumer Price Index inflation plus 3% (4.63% + 3% = 7.63%).

Although a handful of multi-asset low-, medium- and high-equity funds delivered higher returns over the period, none achieved this level of return at such low risk – the biggest monthly drawdown (loss) the fund had over the five-year period was 1.1%, while the average drawdown among its peers was 8.1%.

The fund invests across the asset classes, but equities are limited to 20% of the portfolio, and there is a strong focus on maintaining consistently positive returns.

The fund is managed by Eben Maré, who also heads the Absa Absolute Return Franchise at Absa Investments, and Kanyisa Ntontela. Personal Finance asked them about their strategy and asset selection.

Please outline your investment philosophy/strategy regarding the Inflation Beater Fund, taking into account asset allocation and the macroeconomic backdrop.

We are active, pragmatic value investors aiming to consistently deliver excess risk-adjusted returns. Our investment approach seeks value and rewarded risk. Furthermore, we place significant emphasis on risk-adjusted returns and the quality of our investment outcomes. During (and before) the pandemic, the domestic market suffered from a lack of economic growth. This has had a direct impact on growth assets, such as equities and listed property. We consequently maintained an underweight allocation to property and equity.

To what do you attribute your fund's outperformance over the past few years, and specifically during the pandemic?

The fund’s performance is attributable to our remaining true to our investment philosophy and process. Our aim has always been to build flexible portfolios that consistently yield significant positive real returns with minimal risk. As a result, during the pandemic we had a very low exposure to equity and property, which meant we escaped some of the brutal drawdowns in those markets. On a longer-term basis, we hold a measured approach to assumption of risk, and place a lot of emphasis on consistency and risk management.

Were there any standouts in the equity portion of the portfolio?

When we entered 2020 we had a very low exposure to equity and property. The positions we had went through a rigorous process where we focused on:

  • Quality, low-volatility value type shares.
  • Low price-to-earnings ratios, high dividend yields and shares trading at discounts to net asset value.
  • No index tracking

We further limited our stock exposure based on risk. We were looking for companies that we believed would recover as the economy recovered, and exposed the fund to SA Inc (companies predominantly operating in South Africa). In our opinion, SA Inc is in value territory, and we believe the opportunity exists for meaningful long-term returns. Some of the domestic counters that we built positions in were shares such as Bidvest Group, Imperial Holdings, Pick n Pay and Tiger Brands. We even took a view to build a property position, which benefited us towards the later part of 2020. In short, there was no particular standout: the SA Inc theme was the only dominant feature in our stock selection.


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