The PPS Balanced Fund of Funds

The PPS Balanced Fund of Funds performed well this quarter, comfortably outperforming its ASISA Multi-Asset High Equity category average benchmark (+2.4% versus +1.6%). The portfolio was up despite declines in the South African equity and bond markets, with its meaningful offshore exposure being the primary contributor to positive performance. The fund continues to improve on its positive longer-term track record, while consistently ranking in the first or second quartile compared to other funds in its ASISA category. 

Portfolio Construction

As demonstrated this quarter and over the long term, the PPS Balanced Fund of Funds benefits from multiple return drivers by investing across asset classes rather than in a single asset class. The underlying managers in the fund are responsible for dialing risk exposure either up or down depending on market conditions, by altering the mix of growth assets compared to income generating assets. 

Given its ASISA Multi-Asset High Equity classification, the PPS Balanced Fund of Funds can hold up to 75% of the portfolio in equities which, together with its Regulation 28 complaint status, makes it an ideal vehicle for those saving towards retirement. The fund has adapted to changes in Regulation 28 rules over time, with the most significant of these being the progressive relaxation of foreign exchange controls over time, which today allows for up to 45% of the portfolio to be invested offshore. 

The PPS Balanced Fund of Funds currently invests in four multi-asset strategies – three South African and one global. The SA multi-asset managers are Abax, Truffle and 36One, while the global multi-asset strategy is the PPS Global Balanced Fund of Funds. The three SA managers apply their own strategic and tactical asset allocation methodologies, while our in-house asset allocation views are expressed in the global multi-asset strategy.

Manager selection relies on our industry-leading manager research process and our in-house investment framework that identifies and assesses managers through ongoing qualitative and quantitative due diligence. The custodians of this process are a diverse team of experienced and highly qualified investment professionals, who regularly and expertly engage with the underlying managers and broader universe. 

Outlook

Currently the underlying multi-asset strategies in the PPS Balanced Fund of Funds currently have close to 60% invested in equities, which leaves significant scope for the managers to increase their equity allocation. Equity exposure is well below the 75% limit, which provides an indication of the managers’ risk appetite at the moment. Although economic conditions have proven better than expected over recent quarters, the managers do not consider the environment unequivocally positive.

Global economic growth has generally been more resilient than expected, while the distribution of growth has been uneven. Consensus has shifted in favour of the US having averted a recession, with the IMF even  predicting a “soft landing” as the most likely scenario. Some argue it is too soon to tell, and that the delayed effect of high interest rates will inevitably lead to economic weakness down the road.

It is not clear that high inflation, which remains above Central Bank target levels, has been overcome. The market was optimistic at the start of the year that rates would soon come down, however these expectations have shifted to later in the year, and may need to be pushed further out if inflation remains “sticky”. 

Regardless of how the near-term macro backdrop plays out, the outlook for the PPS Balanced Fund of Funds remains promising. The fund has ample scope to invest domestically as well as offshore, across managers selected from amongst the best in class. Our Multi-Manager Investment Team is committed to ensuring we hold the right mix of managers, and that our flagship PPS Balanced Fund of Funds continues to deliver standout performance.