fundfocus Sasfin
@finweek finweek finweekmagazine finweek^ 19 March 2020^27MARKETS
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By Leon Kokd
espair and frustration undoubtedly
dominate the domestic investment
milieu at present but an interesting
exception to this is Sasfin’s chief
investment officer, Philip Bradford, who has
shown an incredible ability to find good investment
opportunities in difficult times.
This is well-demonstrated in his award-winning
funds, especially the R3.8bn Sasfin BCI Flexible
Income Fund, which has returned an annualised 11% in
the past three years.
“I’m very aware of the difficult economic
environment around us, but we have been able to
identify great low-risk investments that are ignored or
shunned by the rest of the market,” he explains.
“We know from history that normally the best time
to buy securities is when the outlook is poor, and the
worst time is when the outlook is good. However, I
believe it is still too risky to go back into local equities.
I am finding much safer opportunities in SA bonds
which have sold off over concerns around the SA
economy and a potential further downgrade.”
Moreover, he says, markets tend to run ahead of
economies, not the other way around.
In his view, in spite of the current negative public
sentiment, some good things politically are happening
under the surface, albeit slowly, and will inevitably
come to fruition in due course.
Bradford is primarily invested in rand-
denominated floating- and fixed-rate bonds, which
have provided attractive returns with half the
volatility of the All Bond Index.
“Sure, one can get into global equities,
particularly US equities, but at 23 times reported
earnings they aren’t cheap. To justify them at that
level, you’d need consistent double-digit earnings
growth per year over the next 10 years, and that’s an
unreasonable expectation. Therefore, a reasonable
expectation for US equities is 5% or less per year
from these levels. And in SA with 4% to 5% inflation,
you need more than that.”
He points out further that equity values in
developed countries are being maintained at high
levels because interest rates are kept low.
Bradford concedes that in broader-based
portfolios equities are necessary to diversify risk, but
reckons that SA investors generally tend to be overly
exposed to SA equities.
“With a local economy on the ropes, a lot ofCritical choices await
individual investors
uncertainty in global markets and the back end of
the longest US bull market in history, the potential
returns from equities for the next five years are not
expected to be good.
“So, with a low-risk investment giving my investors
over 10%, it’s really an easy decision. SA bonds are
among the very cheapest in the world. You can take
advantage of them now by getting into some fixed-
interest bonds at over 10% and giving you among the
best inflation-beating returns in the world, significantly
better than equities given the risk.
“Turkey may offer higher yields than SA, but why
would you want to go there given their economic
situation?”
Bradford suggests that interest rates both globally
and in SA are likely to decline and that’ll be good for
the country. It could serve as a good boost to both
the domestic economy, local bonds and some sectors
of the JSE. Demand inflation is non-existent and
imported inflation very low.
Nor is he overly perturbed by the likelihood of a
further Moody’s downgrade, pointing out that it’s
merely part of a trajectory – not the end of the world.
“For example, Brazil was downgraded to junk several
years ago, yields went to 16%, and now they’re around
6.5% and they are two notches below SA into junk.
“It is not the end of the world when a country is
downgraded further. It means your borrowing costs
are higher, which makes life more difficult, but global
investors are a lot more tolerant of junk status than
they used to be.”
As an example, Brazilians believe that their recent
troubles were merely a pause in their history and are
now optimistic about the future. This has translated
into buoyant consumer confidence, increased
investment confidence, more stable public sector fiscal
management, and a largely normalised currency. The
country’s net debt-to-GDP ratio is now below 40%,
and a 27% decline in the currency shielded industries
from a flood of imports and loss of jobs.
The Sasfin Flexible Income Fund, launched in July
2015, is a SA multi-asset income fund, compliant
with regulation 28, and effectively makes asset
allocations across high-yielding asset classes such as
preference shares, non-equity securities, fixed-interest
instruments (including but not limited to bonds,
corporate bonds, inflation-linked bonds, convertible
bonds, cash deposits and money market instruments).
There is no minimum investment amount. ■At a time when pessimism can easily affect investors, Sasfin’s chief investment officer shares his thoughts on the
value that can be found in the current economic environment.Philip Bradford
Chief investment
officer at Sasfin“I’m very aware of the
difficult economic
environment around
us, but we have been
able to identify great
low-risk investments
that are ignored or
shunned by the rest
of the market.”