Fund Focus: PPS Balanced Fund of Funds
Historically, the ASISA Multi Asset High Equity category has been dominated by a handful of large funds. In recent years, however, a number of other managers have also gained prominence, having built compelling track records, providing investors with a wider choice of credible options in this popular ASISA category. On the list of standout options is the PPS Balanced Fund of Funds, which ranks among the best performers in the category over the short, medium, and long term.
Launched in 2011, the PPS Balanced Fund of Funds is a multi-managed solution seeking long-term capital growth and is suitable for retirement fund investments, as it is Regulation 28 compliant. The Fund of Funds is constructed to consistently deliver peer-relative outperformance over a rolling five-year period.
The Fund of Funds leverages off our in-house investment framework that identifies and assesses managers through ongoing qualitative and quantitative due diligence. Our research process is in-depth and thorough, and our diverse team of experienced and highly qualified investment professionals spends a considerable amount of time engaging with underlying managers. Through our extensive manager research process, and leveraging off our expert knowledge of portfolio construction, we’ve been able to deliver exceptional returns in this actively managed Fund of Funds, which is a combination of high conviction SA and foreign managers.
Diversification is achieved on a manager level across both South African and foreign markets. Using a systematic approach to portfolio construction and monitoring, the Fund of Funds is a blend of four multi-asset strategies – three South African and one global. Combining multi-asset strategies is our preferred approach when it comes to constructing funds trying to outperform a peer benchmark. The fund invests 28.5% of its assets in the PPS Global Balanced Fund of Funds and just over 25% of its assets each to separate multi-asset segregated mandates run by Abax Investments and Truffle Asset Management. The fund invests its final 20% in the PPS Managed Fund, which is a mandate that partnership manager, 36ONE Asset Management oversees.
The recent category outperformance of the Fund of Funds can be credited to the three local multi-asset strategies it invests in, having reduced portfolio risk and adopted more conservative positioning coming into this year. Even prior to the turmoil this year, the managers had been trimming into last year’s market strength, transitioning to a capital preservation mindset and increasing cash levels. The prevailing theme during the first part of this year has therefore been about reducing risk, however, with markets now having corrected significantly, some managers have been adding to equity exposure selectively.
The three underlying SA Multi Asset strategies in the Fund of Funds have performed well this year, each building on their exceptional individual longer-term track records. What has also been helpful this year is that the bulk of the Fund of Funds’ foreign exposure has been favourably positioned being invested in our global Multi Asset High Equity strategy (via the PPS Global Balanced Fund of Funds), and hence invests according to our tactical asset allocation house view.
In the offshore component of PPS Balanced Fund of Funds, we took the decision to move to an underweight foreign equity position in April, resulting in an overweight in foreign fixed interest (almost entirely dollar cash). Over the past few months, holding a relatively high foreign cash allocation compared to peers in the ASISA category has added value, particularly given the dollar’s exceptional strength. Although we have preferred foreign cash over bonds (which has been helpful given the historic sell-off in foreign bonds this year), we have recently started introducing global bonds, and we continue to build on this.
Includes extracts from a Citywire headline article, originally published on 4 October 2022. Access the link here