Finweek_English_Edition_-_March_19,_2020__

fundfocus Coronation

26 finweek 19 March 2020 http://www.fin24.com/finweek

PORTFOLIO MANAGEMENT

By Pieter Koekemoer

a

fter not expecting much good news in

2019, the political and economic events

that played out during the year were,

if anything, worse than expected. It’s

not surprising that negative sentiment is

pervasive and influencing the way investors

think and feel, but it may not be helpful.

So, we thought it would be worth taking

a step back and look at what really matters

if your aim is to build wealth.

Stay focused on the long term

In an environment beset with fears about

Covid-19 and where the JSE performed

below expectations in three of the last five

years, resulting in a lot of pressure in the

system, it becomes easy to forget that

investment outcomes and real wealth

creation play out over multiple decades.

There is a real prize for investors if they

invest sensibly over the long term. Consider

the table, which shows the wealth multipliers

across our unit trust funds with close to

20-year track records. For every rand invested

in our concentrated equity fund, Coronation

Top 20, at its inception, an investor would

today have R21, compared with R11 from

an investment in the benchmark index (the

FTSE/JSE Top 40 Index until 2015 and the

FTSE/JSE Capped All Share Index since). For

every R10 000 invested in Coronation Top 20

two decades ago, an additional R100 000 of

wealth has been created when compared with

the overall market.

However, in tough times we tend to

forget what needs to be done to achieve

these long-term outcomes. This pressure

applies equally to investors and their fund

managers and financial advisers. The

ones that do well in the end are those who

manage to continue doing the right things

despite the prevailing negative emotions

and behavioural impact.

For fund managers, it’s about staying

focused on valuation and price; understanding

the fundamental value of assets and how that

value contrasts to the current market price.

Paying undemanding prices when you buy

assets is what delivers wealth creation over

very long periods of time.

For advisers, it’s primarily about assisting

clients to stay the course despite periods

Step back to reflect on what matters

of market setbacks or what may feel like

interminable periods of underperformance by

asset classes or fund managers.

Switching out of risk assets at the

wrong time

2019 saw a record level of net flows (>R40bn)

out of longer-term oriented multi-asset funds

and record inflows to fixed-income assets

(>R80bn), especially managed income funds.

This trend is fully understandable given

that fixed-income funds outperformed

multi-asset funds over the preceding five

years. Ironically, while we’ve seen the largest

switch out of risk assets

into income assets in our

industry’s history, risk assets

had a strong recovery year.

As an example, Coronation

Balanced Plus, our largest

multi-asset fund, produced

a real return of 9% in 2019,

compared to the commonly

expected 5% return from

classic balanced funds. The real return alone

exceeds the total return produced by our

flagship managed income fund, Coronation

Strategic Income.

As investors reacted to disappointments of

the past, taking risk was being rewarded.

Buy low, sell high

When assets become less popular, they tend

to become cheaper, and vice versa. There’s

no denying that the domestic economy is

in the doldrums. The debate is how much of

Many investors are grappling with how to allocate their portfolios, given the current outlook for our economy.

this is already reflected in the price.

We believe that there are a number of

attractively valued opportunities in the local

equity market where the opportunity for the

patient investor to do reasonably well is not

premised on a stronger economy.

Valuation and price not the investor’s

key concerns

With it being the fund manager’s job to

agonise over valuation and price, investors can

focus instead on investing in the appropriate

portfolio of assets consistent with their ability

and willingness to take risk. If you can’t stay

invested during tough periods,

you diminish the probability

of creating wealth over time.

And one of the best ways for

investors to focus on staying the

course is to consider investing

in a well-diversified multi-asset

fund.

Study after study across

markets globally indicate that

the return gap (the realised return received by

investors compared to what funds produce) is

the smallest in the case of multi-asset funds.

Part of the reason is that multi-asset

funds offer more diversification and therefore

produce more stable returns from year to year

than you can expect from investments in the

individual asset classes. This makes it easier to

remain committed and to put them on track

to achieve real wealth creation over time. ■

Pieter Koekemoer is head of personal investments at

Coronation Fund Managers.

SOURCE: Coronation | As at 31 December 2019 | Multiplier shown is the gain for each R1 invested in the retail class at launch, rounded to the nearest

integer | Capital Plus BM = CPI+4%; all other BMs are investable market indices or composites of market indices | See relevant MDDs for more detail.

PERIOD (YEARS) FUND BENCHMARK

Equity 23.67 28 times 16 times

Balanced Plus 23.67 23 times 17 times

Global Opportunities Equity 22.5 14 times 12 times

Optimum Growth 20.75 16 times 9 times

Top 20 19.25 21 times 11 times

Market Plus 18.5 13 times 10 times

Capital Plus 18.5 8 times 6 times

Strategic Income 18 .5 6 times 4.5 times

2019 saw a record

level of net flows of over

R40bn

out of longer-term oriented multi-

asset funds.

THE REAL PRIZE FOR STAYING THE COURSE: