Page 172 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 9

The five-year return was 13.0%, highlighting the ability of the SA financial sector to grow
shareholder value even in tough times (over that period we experienced Covid-19, very low GDP
growth rate, load shedding and lack of business confidence).
Valuations now are considerably lower than they were five years ago, so I have little doubt that
the fund will at least generate a similar return over the medium term (next three to five years). If,
however, the US dollar weakens and/or the GNU contains the ANC’s profligacy, SA’s GDP growth
rate should pick up and both banks and insurers should re-rate from the current attractive levels.
The 20% offshore investment within the fund (held in the Denker Global Financial Fund) is
also well positioned to deliver potential returns of 10% to 15% over the medium term, measured in
US dollars. A stronger rand would detract from these returns measured in rand terms.

Are equity markets in general overpriced? Do you anticipate a significant correction or will
the bull run continue?
Certainly, the US tech sector and the S&P 500 have price-earnings ratios quite far above their
historical averages. In contrast, most markets in the EU, UK and emerging markets are attractively
priced, reflecting the excessive negativity towards those markets, which increases the probability
that these markets will outperform the US market. Despite the financial sector’s strong
performance over the past few years, it remains very mispriced (especially in the EU, UK, and most
emerging markets).
So, whilst we anticipate a correction, the financial sector should not be affected or jump back
quickly after a correction.
Could you identify three shares that fall within your universe that you think will perform well
in the medium term?
South Africa: Investec, Nedgroup, MMI and potentially Absa. Over the longer term Capitec

and OUTsurance.
Globally: US Bancorp, National Bank of Greece, Paragon and Shriram Finance.

PortfolioMetrix BCI Dynamic Income Fund

Sector: South African–Multi Asset–Income
Portfolio manager: PortfolioMetrix Asset Management
Benchmark: STeFI Composite index

Returns to investors 1 year 3 years
PortfolioMetrix BCI Dynamic Income Fund 16.52% 11.36%
Sector Average 10.69% 8.48%
Inflation (CPI) 3.02% 5.10%
ProfileData performance stats to 31 December 2024: CAGR with dividends reinvested
Please describe your investment universe.
The Dynamic Income strategy’s investment universe incorporates the full spectrum of South
African fixed income, including corporate credit and inflation-linked bonds.
These instruments all focus on delivering a steady and reliable flow of interest payments
(coupons); however, they all make these payments on a different basis such as reference rates
(inflation or inter-bank lending rates), or on a fixed-value basis. It is our job to assess the value of
these different types of cash-flows and allocate investor capital efficiently and responsibly.
Importantly the strategy does not invest in unlisted credit, nor does it allocate to South African
listed property or speculate with offshore exposure. These exclusions are deliberate and ensures
our strategy is simplified for investors to understand, and do not introduce unrewarded risks to the
portfolio.

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