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“Cash gives optionality in a volatile environment and also serves as a means to reduce volatility,” says Kurt Benn, Head of the Absa Balanced franchise. These are wise words as a cash buffer is tactically sound, in a world where greater nimbleness is required. As assets re-rate and buying opportunities arise the cash holding will come into good use.

Kurt Benn and his co-portfolio manager, Greg Kettles were the guest speakers at our monthly Cape Town and Johannesburg External Distribution Channels (EDC) client lunches. The two have over 40 years of collective experience and this wealth of experience is demonstrated by their depth of knowledge across the board.

The pair manages the portfolios using a multi-counselor approach. What exactly does that mean? It means that they both have an equal say in how the portfolios are constructed; they independently construct their portion of the portfolio; they both keep in mind the CPI plus 5% target; and also remain cognizant of the investment process and philosophy. This approach ensures that the management by consensus element is removed from the fund and also ensures a diversity of views and ideas. Neither portfolio manager gets to dominate and stifle the creativity of the other. This, therefore, results in the portfolio ultimately reflecting the best ideas.

There was an interactive question and answer session, which gave both managers a chance to give their individual perspective and also allowed the pair to showcase how the blend their sometimes very different views, into the portfolios. After they were done, they had managed to convert those of us who were previously doubtful of the merits of the multi-counselor approach. It is truly fascinating to see how two extremely different individuals can come together and successfully co-manage portfolios.

Overall, they remain cautious on equities as an asset class. They view US equities as expensive and note that the current bull market has been one of the longest in history, spanning just over 9 years. While SA equities have de-rated, stock picking is now extremely important, in order to create alpha.  Opportunities will arise once assets substantially de-rate and that cash buffer will become increasingly useful at that point. The duo is walking the talk, as is highlighted by their asset allocation.

The rand at current levels gives a good entry point into offshore assets for those who have not yet maximized on their offshore allocation. They use Schroders for their offshore investing, as Schroders has a relationship with Absa and has four funds, which the Balanced franchise use as building blocks.

Asset class performance for the last 3 years, ending 30 June 2018 is shown below. Cash (the straight line) has been fairly competitive, beaten only by global equities, which is in the lead and local bonds coming in second.

When asked what their main concerns are, they are worried about the potential of trade wars and what that will mean for emerging market economies. They are also deeply concerned about global liquidity as the major economies begin to shrink their balance sheets and quantitative tightening is the new order of the day.

Tsitsi Hatendi-Matika is Head: Retail Investment Specialist at Absa’s Wealth and Investment Management unit.