Page 165 - Profile's Unit Trusts & Collective Investments - March 2025

Fund Manager Interviews

to which the fund’s significant offshore equity exposure benefited from the strong tech-induced
rally in the US & global equity markets, and from rand weakness in 2024.

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, use derivative strategies and/or reduce overall
equity exposure 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 in 2023 and 2024, 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.
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 Japanese
equity and emerging 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 instead to
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 perhaps peak at some
point this year, which will 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.

Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts 163