Page 167 - Profile's Unit Trusts & Collective Investments - September 2025

Fund manager interviews Chapter 9

with a degree of global diversification to reduce volatility. The portfolio’s investment universe
comprises primarily listed equity securities, fixed interest securities, listed real estate and assets
in liquid form. The portfolio is allowed to invest in listed and unlisted financial instruments for the
purpose of efficient portfolio management only. It is permitted to invest in offshore investments as
legislation permits.
The fund is Regulation 28 compliant and can have a maximum of 40% in equity.
Comment on your investment year (July 2024 – June 2025) from a fund manager’s point of view
H4 Stable Fund delivered 14.3% between 1 July 2024 and 30 June 2025 versus its ASISA South
African–Multi Asset–Low Equity Peer Group Average benchmark’s return of 13.3%. Over this period
the fund benefited from solid exposure to SA equity (with the FTSE/JSE Capped Top 40 index
delivering 24.1%) and from Citadel’s SA Managed Volatility Equity Fund (which gained 16.8%)
during the volatile period for risk assets which included the 2 April 2025 equity market slump on the
back of the US’ “Liberation Day” trade tariff shock announcements by President Trump.
South African government bonds provided solid support (with the JSE All Bond index up 18.4%)
on the back of pedestrian domestic economic growth, low inflation, and more accommodative
monetary policy in SA. Global equity markets (MSCI All Country World index) were 16.2% higher in
rand terms over the period while US government bonds (Vanguard USD Treasury Bond ETF) were
up 2.4% in rand terms.
The fund had a higher offshore exposure versus benchmark over this period. Although the rand
did strengthen 2.7% versus the US dollar over this period, the fund benefited from FX hedges which
we implemented in January and April this year which limited the negative impact of the stronger rand
vs US dollar exchange rate on the fund’s offshore assets.
In terms of risk management, what methods or strategies are you able to use to protect your
clients’ investments?
In the H4 Stable Fund we follow a flexible, dynamic, and nimble asset allocation process within
the bounds of domestic regulation. Risk is managed from different perspectives and could include:
„ Holding less than benchmark, or zero, exposure in a particular asset class where risk is
deemed high/unwanted
„ Holding managed volatility equity fund exposures in South African and in the US when deemed
relevant to manage equity market volatility risk
„ The implementation of dynamic equity market hedges through which we limit the impact of
equity market drawdowns on fund returns
„ The implementation of FX hedges through which we manage non-rand currency risk
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?
Based on Citadel Asset Management’s current (mid-August 2025) fundamental view of the global
macro economy and prevailing asset class valuations, these are our expected returns over the next
2 to 3 years:
„ South African cash screens Above Neutral currently
„ On the back of the significant rally in the asset class, South African government bonds are
offering potential future returns that are somewhat lower than what investors have historically
expected from the asset class
„ South African equity is currently on a Neutral valuation signal
„ US government bonds’ valuation signal is also Neutral, while expected returns on US fixed
income spread products (eg, US investment grade corporate bonds and US high yielding
bonds) are Below Neutral
„ US equity markets screen as expensively valued currently, while the combination of somewhat
cheaper Japanese, EM and European equity markets result in global equity with a slightly
Below Neutral valuation signal

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