Best Balanced Funds in South Africa This Year: Quarterly Update from Nedgroup Investments

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In this quarterly update from Nedgroup Investments, Saul Miller, one of the portfolio managers for the Nedgroup Balanced Fund, discusses the fund’s performance, investment themes, and outlook for the future. The Nedgroup Balanced Fund is compared to the internal benchmark of CPI plus four and the sector average, with the fund showing strong performance relative to both metrics. Miller also highlights the fund’s focus on protecting against downside returns, which has helped to keep volatility below the median.

The video begins with Miller discussing the fund’s performance, comparing it to the internal benchmark and sector average. He points out that the fund has performed well across different time periods, highlighting its consistent track record. Miller also emphasizes the importance of managing the volatility of the fund and protecting against downside returns, stating that this is a key consideration when selecting investment opportunities for the balanced fund.

Moving on to specific investments, Miller discusses the factors that have contributed to the fund’s performance over the last year. He mentions the pressure on global markets and the South African economy, noting that foreign bond and currency holdings have performed well. He also highlights the success of offshore exposed counters like BHP and Anheuser-Busch, as well as the reopening of China, which has benefited Chinese shares such as Naspers and Process.

However, Miller also mentions that Cecil has been a disappointment due to production issues and the underperforming oil price. Additionally, the pressure on the PGM basket has affected platinum miners. Despite these challenges, the fund has remained resilient.

Miller continues by discussing the key themes impacting the world over the next year and how they have influenced the fund’s positioning. He expresses concerns about overvalued U.S. markets and the potential for a recession in the next six months. He also notes that earnings expectations are still high, which could pose a risk if there is a downturn. Miller explains that the fund has taken a sizable hedge on the S&P 500 index to mitigate these risks.

Regarding China, Miller highlights the reopening of the economy and the positive impact on consumer metrics. He mentions that shares exposed to Chinese consumption have performed well, and there has been some easing of regulatory pressures. However, he remains cautious about potential risks and emphasizes the need to monitor the situation closely.

Turning to the South African economy, Miller acknowledges the challenges, particularly load shedding. He mentions that infrastructure has been under threat, which has weighed on economic growth. Despite these difficulties, Miller points out that valuations are at historically low levels, providing a margin of safety for investments. The fund has focused on sectors that are less affected by load shedding, such as financials, and has maintained a reasonable exposure to offshore shares and bonds.

In terms of future allocation, Miller states that they would like to see the S&P 500 come under more pressure before increasing their offshore allocation. They believe the market is expensive and not pricing in a recession. They will be monitoring for signs of a market fall and more reasonable valuations before making any changes.

Overall, the Nedgroup Balanced Fund has demonstrated strong performance, effective risk management, and a focus on investment themes that align with the current market conditions. With a cautious outlook for the future, the fund aims to navigate potential risks and capitalize on investment opportunities to deliver favorable returns for investors.

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