In my time as a trustee of what became the Arena pension fund, we were reluctant to look at fund managers that were not part of the Alexforbes Large Manager Watch (LMW), which included the big 10 balanced managers in SA.
These managers all have the resources to do both the security selection (stock and bond picking) and asset allocation. We took the view on the advice of our consultants, Fifth Quadrant — now Willis Towers Watson — that fund managers are in the best position to combine asset classes.
Asset allocation is too important a task to leave to a consulting actuary or a unit trust marketer describing themselves as a discretionary fund manager. That’s not to say the constituents
of the LMW don’t change over time — shops such as the asset managers under the RMB, Metropolitan, Absa and African Harvest brands have disappeared since the beginning of the millennium.
And it is by no means an exclusive list of good managers. In the wider list of balanced funds over the year to December 31 2024, the best performer was the PPS Managed Fund, run by 36One. The firm has an excellent track record, and deserves to pitch to a board of trustees.
But does it have a culture that can be passed on between generations? I know Coronation, Allan Gray and Ninety One, which were our managers at the group pension fund, have been able to achieve this.
None of these managers will be top of the table every year, and they will admit this. But a blend of the three has proved to outperform a passive blend of assets over time, even after fees.
In 2024 Allan Gray was close to the bottom, though it still provided a comfortable real return of 10.9%. But if you had invested in the “hot” funds, the Rezco Value Trend Fund might well have been an option. It employs talented, thoughtful investment professionals. But such is the nature of markets that it had a dismal 2024, matching Allan Gray’s return.
A 10.8% return might not seem too bad, but 2024 was a year to replenish the larder after some dismal years. The best large manager, Coronation, achieved a 17.8% return from those segregated funds that mimic its Coronation Balanced Plus unit trust.
It is important to look at the long term, as pension funds should invest for members’ careers of 35-40 years. I was a strong advocate for individual member choice 20 years ago. Now I am less militant. I believe there should be a sharia option, and possibly an ESG option for people who believe in sustainability and saving the planet.
At our pension fund we introduced a passive, or index-based option. These are popular overseas, but fortunately in SA several managers have been able to outperform their benchmarks over time. There is no evidence that this is changing.
Over 10 years the all share index has delivered a 9% annualised return, and the all bond index 8.6%. Global equities have done substantially better than this with a 16.1% annualised return over 10 years, but they are the only asset class to do so.
Balanced funds have invested predominantly domestically over the past decade due to exchange controls. And despite the cap of 75% in equities imposed on balanced funds, four of the nine surviving members of the LMW have beaten the Alsi — Coronation with 10.2%, M&G and Allan Gray both with 9.7%, and Ninety One with 9.6%.
It is hard to justify moving the savings of members of pension funds to relatively unknown managers. And it is certainly true that there is value in brands. As the adage went, nobody got fired for buying IBM when that business was the blue chip of the US technology sector.
It is hard trying to persuade members that their money is safe in the Aylett Balanced Fund, for example, a product brought to you by the micro boutique Aylett & Co, even though it outperformed all the large managers, including Walter Aylett’s former home at Coronation. Another strong performer, PSG Balanced, with a 10.7% return, doesn’t even market to pension funds — margins are too low — so it wouldn’t provide support to institutional clients.
Fortunately, there are some serious options for investors who want a balanced fund run by a BEE manager, the most prominent being Camissa (formerly Kagiso), which with a 9.9% return outperformed all the large managers except its former parent Coronation. Former BEE flag bearer Oasis has slipped, and with a 7.1% return was 30th out of 31. But then the firm’s centre of gravity has moved towards global sharia products.
The wooden spoon for the 10 years went to the Merchant West Managed Payers & Growers Fund with a 6.3% return. But the fund survives as it still has a niche.
Bizarrely, Alexforbes still publishes monthly returns, which aren’t allowed by convention in the unit trust surveys. These are statistically meaningless but yet intriguing. Aylett Balanced was in fact the worst performer in December and one of only three alongside Oasis and Fairtree Balanced to give negative returns.
PPS had a strong month, with the PPS Balanced Fund and PPS Managed Fund top of the charts.
• Cranston, a former associate editor of the Financial Mail, is author of an upcoming book on asset management.
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