Factor Series Fund of Funds Portfolio Range™
The Factor Series Portfolio Ranges distinct objective is to create a differentiated offering that reflected the latest in investment thinking as well as changes in Regulation 28 investment guidelines. Each portfolio reflects a different investment philosophy which will appeal to a broad spectrum of investment needs and investor thinking.
The portfolio ranges each have a lifestage model which allows a member of a retirement fund to switch from a more aggressive investment portfolio with longer terms to retirement to more conservative and, ultimately, defensive portfolios as a member approaches retirement.
The portfolio range is constructed using strategic multi-asset class exposure, careful multi-strategy selection and best-of-class multi-manager choice. These three factors are expertly blended to reduce volatility, while increasing the probability of achieving the targeted return objectives.
- Multi-asset class
Portfolios within the Factor Series Fund of Funds Portfolio Range™ are aimed at achieving their respective targets by varying their exposures to different asset classes. This means that each portfolio is tailored to cater for a variety of investor needs.
The Factor Series Fund of Funds Portfolio Range™ incorporates a well-diversified blend of investment strategies. Equity strategies typically include deep value, momentum and index tracking. These are complemented by passive stability-focused strategies with defensive qualities.
Our rigorous quantitative and qualitative research processes allow us to screen and choose the best-in class investment managers that have a proven ability to make informed investment decisions on behalf of investors. This process ensures investment managers have a credible investment philosophy, strong people and efficient processes, as well as a track record for demonstrating consistency.
Best Blend Series
Single-asset class strategies:
The focus of this strategy will be on specific asset classes. At this stage, we have focused on building these solutions within two specific local asset classes, namely:
- Momentum Best Blend Specialist Equity
- Momentum Best Blend Flexible Income Fund:
Multi-asset class strategies:
This strategy represents our best attempt to provide complete multi-asset class solutions to the local investor.
- Momentum Best Blend Stable Fund of Funds
- Momentum Best Blend Balanced Fund of Funds
- Momentum Best Blend Multi-focus Fund of Funds
Equity funds provide exposure to specific sectors of the stock market such as resources, financials or industrials. They may also be managed according to specific themes. For example, value funds will have a bias towards stocks which trade on low P/E ratios and dividend yields. Greater focus will be placed on assessing normalised earnings prospects through the business cycle and quantifying them relative to current share prices. Growth funds may be more momentum-orientated favouring stocks in fast growing industries or regions. Specialist funds may be more risky than general equity funds which provide broad exposure to the market, especially if they are sector-specific.
Income funds provide exposure to either short-dated corporate paper or to longer-dated corporate and government debt, or a combination of the two. Fixed interest funds are generally seen as low risk investments and when compared to equity or property funds, this is usually true. However, the risk and return characteristics of fixed interest funds vary widely and should be understood prior to making an investment:
- Duration can introduce volatility if interest rates deviate substantially from expectations.
- Low volatility of past returns is not always a good risk indicator – this is because credit risk is only fully appreciated when corporate or governments default.
- Interest rates can also move unexpectedly and substantially in adverse market conditions which may not have been experienced recently.
- The quality of the corporate paper held, quantified by credit agencies, is an important indicator of potential defaults.
- Any potential returns in excess of cash come with risk.
These funds are South African-based but provide exposure to offshore assets. Consequently, fluctuations in the rand is a significant factor affecting returns. Another factor is the asset mix between offshore cash, bonds, property and equities. Cash and bond funds generally experience the least volatile hard currency returns, whilst those holding only offshore equity will show the greatest volatility in hard currency. International asset mix funds provide diversified exposure to offshore cash, bonds, equity and property with varying degrees of hard currency volatility.
Multi-asset class Funds
Many investors choose to leave the decision of how much to allocate between cash, bonds, property and cash to professional investment firms.
Multi-Asset funds provide exposure to equity, property, bonds and cash, generally both locally and offshore. Investors are protected by diversification across asset classes and regions. If one asset class or region underperforms, another may outperform, thus underpinning total portfolio returns.
The volatility of asset mix funds depends on the combination of cash and bond holdings, relative to more risky holdings in equities and property. Fund mandates with high equity limits generally have higher volatility. Offshore exposure, even if only invested in cash, can introduce currency volatility as a consequence of currency fluctuations.
The Momentum Property Fund has roughly 75% of its exposure in large-cap, blue-chip property counters, but has also been selective in investing in new property listings which account for 15% of the fund. The offshore exposure is taken through Capital Shoppings in the UK and NEPI.
The research process and philosophy in property is concentrated on investing in those companies that are located in strong geographic nodes and have the potential to manage their vacancies and improve on rentals. The fund does not sacrifice yield at the expense of quality and ensures that the selected property shares are defensive through various property cycles.