The fourth quarter (Q4) of 2020 witnessed considerable improvement in market sentiment driven in part by Central Bank stimulus, fiscal relief packages and most importantly, positive news from various pharmaceutical companies pertaining to COVID-19 vaccines. Still, South Africa’s economy contracted by 7% in 2020 reflecting the full impact of the COVID-19 pandemic and strict lockdown. However, in Q4 of 2020, South Africa posted a growth of 1.5%, giving an annualised growth rate of -6.3%.
With the above in mind, we are delighted to provide you with an update on the Absa Inflation Beater Fund, a specialist portfolio in the multi-asset category and one that has consistently delivered CPI+3% in line with its aim to provide consistent positive returns above inflation.
Launched in September 2002, the Absa Inflation Beater Fund has over a one year, three year and five-year period, returned an annualised 8.1%, 9.8% and 9.6%, respectively.
According to the Fund Managers, Eben Maré and Kanyisa Ntontela,the Inflation Beater Fund’s outperformance, specifically during the COVID-19 pandemic, is largely attributable to its conservatively managed approach, and focus on the investment philosophy and process. “Our aim has always been to build flexible portfolios which consistently yield significant positive real returns with minimal risk. As a result, during the pandemic, we had a very low exposure to equity and property, which meant we escaped some of the brutal drawdowns in those markets. On a longer-term basis we hold a measured approach to assumption of risk and place a lot of emphasis on consistency and risk management,” says Maré and Ntontela.
*Figures are gross of fees
Source: February 2021, Morningstar Direct
About the Absa Inflation Beater
The Absa Inflation Beater Fund is a conservatively managed low-equity multi-asset fund, targeting a stable, above-inflation return for its investors. It achieved that admirably over the past five years, delivering a gross of fees performance of 9.4% annually.
An award-winning fund, the Absa Inflation Beater Fund was, in February 2021, awarded the 2020 Raging Bull Award for the Best South African Multi-Asset Equity Fund on a risk-adjusted basis over five years, and also walked away with a Certificate for the Best South African Multi-Asset Low Equity Fund on a risk-adjusted basis over five years. For the 2021 Morningstar Fund Awards, the fund was recognised as the Best Cautious Allocation Fund for the third consecutive year.
Given the current economic outlook and the damage that the COVID-19 pandemic has already had on South Africa’s potential growth rate, what’s the likely impact on the performance of the fund going forward and how is it being positioned for the year ahead? “We believe that domestic cash is a proxy for inflation, while international cash holds no value. Domestic bonds offer attractive real returns, with fiscal risks “reasonably” priced in, and again we view international bonds as hugely unattractive. There is upside in domestic equities. We question whether international equities are appropriately priced for risk. Property is a decimated asset class; we believe it could hold significant upside for a domestic recovery,” says Ntontela.
Our short- to medium-term view is that markets have discounted all the good news and we find limited upside in risk markets. Even with vaccines, the pandemic will require time to be worked out of the system. The economic carnage, in the meantime, warrants a careful and measured approach to risk taking,” concludes Maré.