Pension funds offshore holdings kick in

1/27/2012 12:40:01 PM

In a year in which the JSE all share index gave a paltry 2,6% return, most pension fund members got considerably better returns. In the Alexander Forbes Global Large Manager Watch, which shows the investment returns from the large SA balanced managers, the returns varied from 12,6% from top performer Allan Gray down to 7,5% for Momentum All the managers benefited from exposure to offshore assets, finally. Up to the end of December 2010 the return on global equities had been 4%/year for five years, less than half the returns on domestic cash. But in 2011, thanks in part to the depreciation of the rand, global bonds provided a 31% return and global equities 16%. Most of the difference in performance can be explained by asset allocation. Allan Gray had just 47% of the assets in its pooled balanced fund in domestic equities and 25% offshore, Momentum Balanced 55% in domestic equity and 14% offshore. It was a sharp turnaround for Allan Gray, a firm that can never be written off. It was bottom of the pile in the 12 months to June 2011, before its large holding in rand hedges such as BAT and SABMiller bailed it out. It is hard to believe that Momentum’s performance was not affected by the focus on the merger of RMB Asset Management with Metropolitan Asset Managers, as part of the merger of their parent companies. Momentum Investments MD Morris Mthombeni says the two investment processes had similarities, putting emphasis on company research and company valuations. But Momentum still has work to do before it gets onto the short lists of pension fund consultants as a balanced portfolio manager — five years ago this was one of RMB’s strong points. Chief investment officer Jonathan Stewart says Momentum kept out of shares it considered expensive, such as Shoprite and Richemont, which was unfortunate as they continued to rise. Sanlam Investment Management head of equities Patrice Rassou says it was a year in which a value approach did not work. He says much of the market is already expensive, especially industrials. In comparison, the diversified mining companies, Anglo American and BHP Billiton, provide a lot more upside. “Our decision to hold big positions in these shares has been vindicated by the rally in 2012 to date,” says Rassou. SIM’s large position in Old Mutual has also helped recently — it is a lot more lukewarm about the prospective returns from its parent company Sanlam. Chris Freund, who manages Investec’s balanced portfolios, says he is disappointed that the world economy did not recover in the second half in the way he had anticipated, but he believes there have been some positive developments. “I do not hear as much talk about a doubledip recession in the US. And I believe that the systemic risk from the current financial crisis has been reduced by the promise of the European Central Bank to provide special funding to more than 500 European banks.” Freund says the poor yields available from fixed interest locally and globally will force investors to look at highyield equities instead. “For the first time in many years we have even taken a look at Liberty shares.” Freund nonetheless is the largest holder of cash (after maverick RE:CM), at 18%. Last year was not a stellar one for Freund, but he is the top performer over five years and second to Coronation over three years. Just 10 basis points separate SIM (7,64% for the year) in eighth place from bottom-placed Momentum. Stanlib, under the leadership of Stewart Rider, a former insurance analyst, continues to get runs on the board, helped in part by its chunky holdings in retailers. Stanlib has now crept out of the relegation zone, even over five years, where it is ahead of Momentum, SIM and Oasis. It has been a tough market to read over five years. And only one manager, Foord, has been in at least fourth place over one, three and five years.

Financial Mail