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At the end of 2001, more than four times as much money was invested in local equity unit trusts as was held in multi-asset funds. Over the past 15 years however, this has reversed dramatically.

There is now more than twice as much money held in balanced funds as there is in pure equity unit portfolios. Balanced funds have quite clearly become the preferred vehicle for South African investors.

More specifically, multi-asset high-equity funds have become easily the largest local unit trust category. At the end of September, the Association for Savings and Investment South Africa reported that R428.7 billion was invested in these mandates, which is nearly half of all the money held in South African balanced funds.

captionA large part of the reason that these funds have become so popular, is that the best of them have been able to produce equity-like returns, at much lower risk. Since most of them comply with Regulation 28 of the Pension Funds Act, they can also be used in retirement-funding vehicles such as retirement annuities.

However, the popularity of these funds has also meant that more and more managers have wanted to compete in this space. There are now over 200 multi-asset high equity unit trusts, making it rather difficult for investors to identify the ones appropriate for their needs.

While past performance should never be used as the only indicator of a fund’s quality, it is a good place to start. And it is therefore worth looking at which of these unit trusts have produced the best longer-term returns.

 The table below shows the top 15 South African multi-asset high-equity funds over the past five years:


Top performing SA multi-asset high-equity funds to October 31 2016

Top PerformingThe first thing worth noting is that the top 14 funds all delivered returns ahead of the JSE All Share Index (ALSI). This is up from just three funds that had out-performed the market over five years at the same time last year.

To a large extent, this has to do with the relatively poor performance of the local equity market over the past 36 months. These balanced funds have done better than South African equities because they have been able to find alternative sources of return, particularly offshore.

However, investors should also be aware that these 14 funds that beat the index, represent only around 17% of the unit trusts in this category with track records this long. The average fund has produced returns significantly below those of the equity market.

This highlights just how difficult it is to select a manager who will be able to produce this kind of performance, as it is very difficult to tell beforehand who the winning managers will be.

That said, the Truffle MET Balanced Fund stands out ahead of all its peers in this category over this period. It currently allocates only 43% of its portfolio to South African-listed shares, with 23% held offshore and over 6% in listed property. What is also remarkable is that it has delivered these strong five-year returns, even though it has been negative over the last 12 months.

The Rezco Value Trend Fund has been a top-performer in this category for many years and continues to produce outstanding performance. At the moment it is also one of the most conservatively-positioned funds in its class, with just 20% allocated to local equity and nearly 60% of its portfolio in cash. Even so, it has also been negative over the last year, which illustrates just how difficult the current investment environment is.

Another fund worth highlighting is the Nedgroup Investments Core Diversified Fund, which is a passive balanced fund. In other words, it only uses index-tracking products for its underlying exposures and therefore comes at low cost. It is exceptional that this strategy has delivered returns not only better than the Alsi, but better than 85% of the funds in its category.

Taking a longer-term view, the table below shows the top ten funds in this category over the past ten years.

Top Performing

There are only 41 multi-asset high-equity funds with track records this long. This excludes five of the top performers over five years – the Truffle, Rezco Managed Plus, Nedgroup Investments, Personal Trust and Plexus unit trusts.

Over this longer period, there are five funds with records better than the Alsi. At the same time last year, there was only one.

That was the Rezco Value Trend Fund, which continues to be the top performer in this category over the long term. It also stands out for delivering annualised returns, more than 1.5% better than any of its peers.

It is also notable that the Allan Gray, Coronation and Investec funds are all near the top of this list. These are three of the four largest funds in this category, which together hold 47.5% of all the money invested in multi-asset high-equity portfolios.

This suggests that the average investor has done pretty well from investing in a balanced mandate.


Article first published in The Investor / MoneyWeb / PATRICK CAIRNS

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