Page 166 - Profiles's Unit Trusts & Collective Investments - September 2024

CHAPTER 9

Please comment on your investment year (July 2023 – June 2024) from a fund manager’s
point of view.
The fund delivered 11.9% between 30 June 2023 and 30 June 2024. The fund’s strategic asset
allocation consists of 35% SA equity and 65% global equity. During this measurement period the
fund had an underweight exposure to the underperforming SA equity market (relative to global
equity in ZAR terms), which assisted returns. The fund also held US managed volatility exposure
at certain periods throughout the year, which has added value; in addition to which the fund’s
significant offshore equity exposure benefited from the strong tech-induced rally in the US equity
market in particular. Equity and FX hedges during the year also added value.

In terms of risk management, what methods or strategies are you able to use to protect your
clients’ investments?
Investors in this fund expect us to deliver equity-like returns over time, which implies that
capital protection would not typically be one of the core objectives of this fund. The fund must
always have an equity exposure of larger than 80%. During times when equity may be unattractive
from a fundamental valuation, risk and/or sentiment perspective, and if we want to reduce the
fund’s exposure to equity risk then we can make use of Citadel’s managed volatility equity
solutions (both locally and domestically), use cash, or use derivative strategies to manage
downside.
Please comment on the year ahead and, if possible, estimate the performance of your fund
over 2 or 3 years. What are your targets and objectives for the year ahead?
From an expected return perspective, over the medium term, our fundamental valuation
analysis suggests that emerging equity markets (including South Africa) are expected to deliver
returns in line with, or slightly above, their historic norm (of roughly inflation plus 5% or 6% per
annum). The outlook for US equities, in particular, is less sanguine currently given the strong
rebound in US equity markets, which is leading to a less attractive current entry point and
consequently to below-normal expected returns from the asset class going forward over the
medium term. European equities currently offer decent expected returns.
Are equity markets in general overpriced? Do you anticipate a significant correction or will
the bull run continue?
US equity markets are unattractive from a pure valuation perspective currently, while
European, Japanese and emerging equity markets (including South Africa) are offering the least
demanding valuations currently. So, it is advisable to not generalise in terms of overall equity
markets but to instead delve a bit deeper into specific sectors, countries and regions.
Offshore investments are heavily influenced by the rand. Please give your view on the rand
over the next 1, 3 and 5 years.
The rand is a volatile currency that is impacted by very many local and global economic & other
factors and hence we would not forecast the rand over the longer term, although we acknowledge
that inflation differentials or interest rate differentials over the long term have typically favoured a
stronger US dollar vs the rand. We are of the opinion that the US dollar may peak at some point in
the not too distant future, which will also naturally impact the rand vs the US dollar exchange rate.

Could you identify three shares that fall within your universe that you think will perform well
in the medium term?
In the H4 Worldwide Equity Fund we achieve our equity exposure via passive investment
vehicles/mandates. The fund’s SA equity exposure tracks that of the FTSE/JSE Capped Top 40
Index, while the offshore equity exposure is split among a developed market (DM) equity
exchange traded fund (ETF), an emerging market (EM) equity ETF and an index fund that
provides exposure to a combination of DM and EM equity. We are therefore not doing direct
individual equity security selection in this fund.

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