ASISA Stats at quarter ended March 2019 report that 36% of assets (R764 billion) in the Collective Investments Scheme Industry are invested in income generating funds. These include income, variable term, short term, and money market funds.
Having traditionally been a more equity focused house, with the hire of Jean-Pierre Du Plessis in January this year, Laurium Capital launched the Laurium Income Prescient Fund on 1 March 2019. Du Plessis’ appointment brings important fixed income capability to the 13-strong Laurium investment team, with more than 20 years’ experience in financial markets, predominantly focused on fixed income and alternative investments.
The Laurium Income Prescient Fund is a multi-asset income fund. Funds in this category may invest in a spectrum of bonds, money market, real estate markets or to a limited degree, equities, with the primary objective of maximising income. They can have a maximum effective equity exposure (including international equity) of up to 10% and a maximum effective property exposure (including international property) of up to 25% of the market value of the portfolio. The ASISA category allows the fund to invest within the SARB limits, a maximum of 30% in offshore investments and 10% in African investments. This said, the fund will aim to limit currency volatility through hedging where appropriate.
The Laurium Income Prescient Fund has a primary target of generating inflation + 3% returns, and a secondary objective of avoiding drawdowns over a rolling 3-month period. This fund is for investors who want to obtain real returns but with low volatility and is focused on compounding real returns over time whilst minimising the potential for drawdowns. The largest determinate of returns will be derived from generating yield in the portfolio. There are several drivers which can be used to actively generate returns – duration, credit, inflation linked bonds, preference shares, property and international assets and currency.
Fixed Income investments play a vital role as a source of income, for capital preservation, total return and diversification benefits. However, in volatile times there is a temptation to try and time markets by switching into less risky assets, which has proven to be a destroyer of strong real returns over time. This temptation is evident over the past 12 months
ended 31 March 2019, with net flows into fixed income funds accounting for 75% of total net industry flows. Given the poor performance of equity markets over the past five years this may not come as a surprise, but it is important for investors to remember that equities deliver real returns over time. This graph shows that over the last 20 years, the All Share Index has delivered positive real returns over five-year rolling periods 100% of the time, and for what is it worth, given that forecasting the future is unpredictable, Laurium expects that investors may benefit from a better return environment from equities over the next few years.
Rather than timing the markets, a strategic combination of investments across asset classes is likely to be the best approach in diversifying clients’ assets to achieve their financial goals and generate retirement worthy returns over time.