KAGISO PROTECTOR FUND
Raging Bull Award for the Best South African Multi-asset Equity Fund on a Risk-adjusted Basis over five years to December 31, 2019
Certificate for the Best South African Multi-asset Medium Equity Fund on a Risk-adjusted Basis over five years to December 31, 2019
The Kagiso Protector Fund is aimed at investors who want to protect their capital, yet be moderately exposed to higher-risk assets to achieve above-inflation growth. It’s risk rating is low-to-medium, and it invests across asset classes, with about 44% of the portfolio in local and offshore equities at the end of November 2019. About 10% of the portfolio is in equity derivatives, which offer protection on its equity exposure.
The fund’s benchmark is Consumer Price Index inflation plus 4%. Last year it returned 15.12%, according to ProfileData, pushing up its annualised return over five years to 7.28%. This return, adjusted for risk, earned the fund not only the Raging Bull certificate for the best multi-asset fund in the Asisa medium-equity sub-category, but the coveted award for the best fund across high-, medium-, and low-equity categories.
Personal Finance put the following questions to the fund’s manager Simon Anderssen:
Please outline your investment philosophy for the fund.
Our investment philosophy focuses on valuing long-term cash flows rather than reacting to short-term news flow. We believe a long-term orientation allows us to make investment decisions based on mispricing that arises in a world that is fixated with immediate gain. This philosophy applies to all asset classes we invest in.
The Kagiso Protector Fund has a return objective of CPI + 4%. When we construct the fund portfolio, we envisage an individual with a living annuity. These investors have a low tolerance for volatile returns yet require some exposure to risk assets to generate a real return to sustain their income requirements or extend the life of their investments. These considerations influence our asset allocation decisions, while the underlying securities are selected through the consistent application of our investment philosophy and process.
The investment universe spans equities, property, bonds, money market instruments and derivatives. We focus primarily on South African instruments, but a reasonably large percentage of the portfolio could be invested globally.
To what do you attribute the fund's outperformance in 2019?
Very strong stock selection explains much of the 2019, and prior years’, outperformance. We attribute this to an investment philosophy of a thorough bottom-up understanding of the investments we hold, combined with a long-term orientation.
Outside of equities, asset allocation decision-making was strong and the return contribution from other asset classes was very pleasing for the year. The fund’s fixed-income and preference share holdings, in particular, added meaningfully to performance.
Were there any particular standouts in the portfolio?
Holdings of platinum stocks, Northam and Royal Bafokeng Platinum, were clear standouts for the year and provide examples of how a detailed research process coupled with a long-term perspective can pay off handsomely.
A number of other mid-cap holdings contributed meaningfully to 2019 performance. Examples include Datatec, which completed a major restructuring and used these proceeds to return value to shareholders last year, and Clover, which was acquired by an international investor.
How have you positioned the fund for the year ahead?
The Kagiso Protector Fund is positioned for robust global growth but with a challenging domestic growth environment. Within this context, we continue to see opportunity in a number of local equities that are not reliant on a rebound in South Africa’s GDP growth rate. These businesses have good prospects based on idiosyncratic investment cases or export-led growth opportunities. Examples include Omnia, Metair, Brait and Adcorp.
The fund maintains sizeable exposure to somewhat scarce, high-yielding instruments within credit and preference share allocations. In a context of record amounts of negative and very low interest rates on government debt across the world, the fund has a measured exposure to South African government bonds that currently offer attractive real returns.