How did balanced funds perform in 2017?

Over the last decade balanced unit trusts have become the most popular option for South African investors. The South African multi-asset high-equity fund category now makes up a quarter of the entire industry.

Since this is where the largest portion of local investors’ money is held, there is a lot of interest in how funds in this category perform. Over the 12 months of 2017, they produced a mixed bag of results.

SA multi-asset high-equity fund performance for 2017
Top performing fund 21.08%
Worst performing fund 0.18%
Category mean 10.06%
Category median 10.11%

Source: Morningstar

This shows that investors in different funds could have had significantly different experiences over the year. While the average return was a satisfactory 5.0% or so above inflation, there were a number of funds that delivered performance well above that, and a handful of others that delivered no real return at all.

SA multi-asset high equity-fund performance for 2017
Top performing funds
Element Balanced SCI Fund A 21.08%
Ci High Equity Strategic Fund A 21.00%
Satrix Balanced Index Fund A1 19.04%
Long Beach Managed Prescient Fund A1 17.69%
Prescient Balanced Fund A1 17.51%
Laurium Balanced Prescient Fund A1 15.24%
STANLIB High Equity Balanced Passive FoF A 14.81%
STANLIB Moderately Aggressive FoF A 14.59%
Wealth Associates BCI Balanced FoF A 14.20%
Centaur BCI Balanced Fund A1 14.04%

Source: Morningstar

SA multi-asset high-equity fund performance for 2017
Worst performing funds
Florin BCI Managed Fund A 0.18%
Imara BCI Balanced Fund A 2.53%
Renaissance BCI Managed Fund A 3.11%
Oasis Balanced Fund A 3.36%
STANLIB Inflation Plus 5% Fund A1 4.27%

Source: Morningstar

It is notable that three passive unit trusts appear in the list of top performers – the Satrix, Prescient and STANLIB funds. These strategies have become increasingly popular as they develop longer-term track records.

The Satrix offering did particularly well last year as it makes use of smart beta strategies for its equity holding rather than a vanilla market cap index. The quality, momentum and dividend indices it tracks all did very well over the year and investors realised that benefit.

Top performer

The top-performing fund for the year was however the Element Balanced SCI Fund. This has been a good period for the contrarian manager, but just two years ago this unit trust was one of the worst in its category.

As the below chart from Morningstar shows, the fund severely underperformed its peers in 2013, 2014 and 2015. The last two years, however, have seen it deliver some noticeable outperformance.

Source: Morningstar

(The red line is the fund performance; orange is the category average; green is a benchmark of 50% bonds, 50% shares.)

Element Balanced SCI Fund performance
2013 2014 2015 2016 2017
13.8% 0.7% 3.3% 8.8% 21.1%

Source: Morningstar

What happened in December?

A particularly notable feature of balanced funds over the last year is that by far the majority of these funds showed negative returns in December. Some fell more than 5%, even though the FTSE/JSE All Share Index was down less than 0.5% for the month.

The big losers would of course have been those with large positions in Steinhoff, but Naspers also slipped during December. In addition, the rand strengthened significantly, reducing the value of foreign holdings in local currency terms. It’s therefore interesting to note which funds delivered the strongest returns for this month:

SA multi-asset high-equity fund performance for December 2017
Top performing funds
Bridge Managed Growth Fund A 4.52%
Ci High Equity Strategic Fund A 4.20%
NMRQL SCI Balanced Fund A 3.49%
Satrix Balanced Index Fund A1 2.68%
Perspective Balanced Prescient Fund A1 2.54%

Source: Morningstar

The Satrix Balanced Index Fund again makes an appearance here. This shows how this fund’s composition creates the possibility of meaningful outperformance, proving that passive balanced funds are by no means simply offering an ‘average’ return. What investors will need to watch is whether this means there could be periods of major underperformance as well.

It’s also interesting that two new funds appear on this list. The Perspective and NMRQL funds were both only launched in the second half of 2017.

Perspective Investment Management is a new boutique firm started by Daniel Malan and Sean Neetlingh, who were both previously with RECM. NMRQL is a fascinating new manager that runs its funds using machine learning. Both present offerings worth watching over the next few years.

Note: Past performance is not an indicator of future performance, particularly over a period as short as one year.


Source: MoneyWeb, by Patrick Cairns