The case for low-risk solutions

01 December 2021

As 2021 draws gradually to a close, reflecting on the past 24 months one can say that things have been rather complex since the Coronavirus (COVID-19) was first reported at the end of 2019. We have seen unprecedented economic, social and political upheavals that have changed the way we live in and understand our world, fueling uncertainty - from the massive globally coordinated lockdowns, enormous government stimulus along with an almost unprecedented increase in the global monetary base and the rise of widespread social justice outrage.  At the same time, virtual crypto assets are minting overnight millionaires and billionaires who are trading ownership independent of traditional institutions and the rise of the meme stock with GameStop and others, have made and broken fortunes.

Given this uncertainty and the massive returns we have seen in many global and local asset classes (over the last 12 months both property and preference shares have returned close to 60% and equities returned almost 28%), taking profits and considering lower risk solution funds may be appropriate. Ashburton Investments has two funds in the multi asset space that are aimed at conservative and cautious clients who are looking for long-term solutions.

The Ashburton Diversified Income Fund uses a combination of asset allocation, security selection and hedging to create an absolute return performance profile that aims to outperform money market and cash-plus portfolios over time. They do this by combining a diverse range of return streams into the portfolio that allows the manager to target higher returns without sacrificing liquidity.

This is possible because most of the assets in this portfolio that distinguish it from the cash-plus type funds are liquid. Government bonds, property and offshore assets are all liquid, and both increase the liquidity position of the fund and enhance potential returns over time.

The Ashburton Targeted Return Fund, which was restructured recently, is another fund within our multi asset range. It aims to produce returns in excess of inflation + 3.5%, while being a safe pair of hands in more turbulent times. It is managed using the same tools and process as the Ashburton Diversified Income Fund and has performed exceptionally well since the restructure.

Currently there are fears around inflation, growth and equity valuations while at the same time policy rates in the developed world are at or close to all-time lows. Concurrently, there are significant opportunities in the South African bond markets. At the start of November, a significant portion of the SA nominal bond curve from the 10-year point onwards was trading in excess of 10%, implying potential returns over the next 12 months of between 8 - 13%. A similar situation is at play in the inflation linked bond market, offering real yields of around 4% above inflation.

We expect that the next 12 to 24 months will be very advantageous to the more conservative funds that have a large and active bond component. Both of our offerings in this space are well positioned to take advantage of this trend.