Long-term investing: Learnings from the Ashburton Targeted Return Fund

10 January 2024

It is not widely understood how tough it is to succeed in the asset management industry. Most funds and houses never really attain any meaningful scale and everything one achieves can come crumbling down very fast.  It’s a reputation game and as Warren Buffet says, “It takes 20 years to build a reputation and five minutes to ruin it.”

At Ashburton we have been on a journey to carefully rebuild and relaunch one of our portfolios - the Ashburton Targeted Return Fund – over the last three years. It sits in the low equity category along with more than 150 other funds. Over 30% of the funds in the category have less than R200 million in assets, with the median fund sitting on R350 million.

Or to put it another way, the top six funds have roughly the same Assets Under Management (AUM) as the bottom 150.

In our industry, the average sales discussion requires a fund to have good performance over the last year. Once this is achieved, clients want to see it being maintained for three years in different market environments. After this, if the fund is too small, you can’t gather assets, as allocators don’t want to be too large a proportion of any fund.

It’s been said that 50% of asset management success is just survival – and while this is true, what remains unsaid is how hard survival can be.

The journey to reform the Targeted Return Fund started in July 2020 when the decision was made to shift the management of the fund to my colleague Chris Siriram, Head of LDI and Structuring and myself. This was done because of the nature of the mandate and the category. The fixed income allocation in the fund would always be between 55 and 70%. We wanted to move to a more risk-aware approach while also taking advantage of the changing local landscape where one can more easily get solid, predictable, real returns in bonds and other fixed-income assets than was historically the case. The goal is to manage a portfolio that is built for this purpose, rather than being a de-risked, scaled-down version of a Balanced Fund, as is so frequently the case in this category.

The changeover happened on 1 December 2020 and we get to look back and judge the success of our journey thus far.  It has now been three years and we’ve experienced the steepest US rate hiking cycle in 40 years, the biggest US bond bear market in history, an ALSI bull market of over 20% per annum from 31 December 2020 to January 2023, with -3.6% since then, along with inflation almost everywhere reaching multi-generational highs.  Not to mention loadshedding, Lady R and two new wars.

To say it has been tumultuous is an understatement.    

Over this time, the Fund has done everything we could have hoped for. It outperformed its peers and benchmark over one and three years, placing in the first quartile for both. It maintained risk controls, reduced drawdowns and gave clients almost 33% since the switch. Also, it almost tripled its asset base to over R1.2bn.

In a world with persisting complexity, interest rates remaining attractive, and where an alternative approach to an existing product could be valuable, the Ashburton Targeted Return Fund has the potential to be a valuable addition to client portfolios. Of course, nothing in life is certain, but this exercise has again taught me to trust in the value of fixed-income investments over the long term – the reason why I go to work every day and do what I do, even when the world is a scary and tumultuous place. In times of crisis, one’s overriding instincts might be to freeze or run away, but it’s often best to fight through it with reliable long-term investment methodologies that have stood the test of time. 

Disclaimer:

The views expressed in this media release represent the views of Ashburton’s investment team as at the date of publication and may be subject to change without notice due to altering external factors and market conditions. This information should not be considered as financial or investment advice. Ashburton will not be liable for any loss caused by reliance on any opinion or statement made in this content.

Ashburton Fund Managers (Proprietary) Limited (Reg No 2002/013187/07) (“Ashburton”) is an authorised Financial Services Provider (“FSP”) in terms of the Financial Advisory and Intermediary Services Act. 37 of 2002 (“FAIS Act”), with FSP number 40169, regulated by the Financial Sector Conduct Authority. This document is not advice in respect of any other financial, investment, trading, tax, legal, accounting, retirement, actuarial or other professional advice or service whatsoever (“advice as defined in terms of FAIS”).