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A well-diversified, all-weather portfolio

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As inflation expectations normalise and economic activity is forecast to rebound following the pandemic shock, the economic backdrop is likely to be supportive of a broader range of companies. (Image: Supplied)
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Andriette Theron, Head of Research at PPS Investments

2020 was a powerful year for select consumer discretionary, technology and digital-related companies, where the COVID-19 pandemic provided an acceleration in take-up of their products and services. Against this backdrop, returns from the PPS Global Equity Fund were particularly strong as investments in companies, such as Tesla and Amazon, generated strong returns over the year

From early November 2020, following the announcement of several effective vaccines, markets turned their attention to companies that had been previously neglected during the relatively narrow market rally of 2020. The PPS Global Equity Fund managed to participate in both of these periods delivering 28.89%* since its inception in January 2020, relative to its benchmark, the MSCI All Country World Index (ACWI), which produced a total return of 20.88% over the same period. 

As inflation expectations normalise and economic activity is forecast to rebound following the pandemic shock, the economic backdrop is likely to be supportive of a broader range of companies. For portfolio managers in the PPS Global Equity Fund, current investment opportunities are not considered a binary choice; cyclical and secular growth opportunities co-exist in the portfolio, which is underpinned by a broad base of core investments. 

The portfolio is built on a company-by-company basis by a team of portfolio managers who are given the freedom to make individual high-conviction, long-term investment decisions. The portfolio construction has been deliberately designed to achieve cognitive diversity and ensure a well-diversified portfolio. The result is a portfolio with more than 300 stocks, which remains balanced and diversified across regions, sectors, industries and very importantly investment styles.

Against the current market backdrop, companies that the fund invests in can be categorised as follows: economically sensitive companies (e.g. JPMorgan Chase, Airbus and LVMH), companies aligned with long-term secular growth trends (e.g. Tesla, Amazon, PayPal, TSMC) and broad foundations, a core set of investments that provide a broad and stable foundation to the portfolio (e.g. Nestle, Microsoft). 

Long-term resilience

Over the longer-term, prolonged growth or value-driven market cycles have not mattered for the strategy when it comes to generating positive excess returns.

The strategy employed has outperformed the global equity market during every major growth and value-driven market cycle over the last 46 years with the exception of a short period in the mid-to-late 1980s, which was largely a consequence of being underexposed to Japanese companies at the height of the Japan equity market bubble.

During its lifetime, the strategy has navigated energy crises, runaway inflation, swings in exchange rates, multiple recessions (and recoveries), financial market bubbles, central bank monetary policy experiments, changing patterns of global trade and a global health pandemic. Its consistent results have not been achieved by correctly timing inflection points in markets or having a distinct (and in favour) investment style. Instead, the consistency of the strategy’s excess returns lay in its long-term investment horizon and a well-diversified core portfolio.

The PPS Global Equity Fund is managed by partnership manager, Capital Group. For more information, visit www.pps.co.za/invest.

This post and content is sponsored, written and provided by PPS Investments.

Disclaimer

This information is not advice, as defined in the Financial Advisory and Intermediary Services Act. Collective Investment Schemes in Securities (CIS) are generally medium-to long-term investments. The value of participatory interests (units) may go down as well as up, and past performance is not necessarily a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending up to 10% of the market value of the portfolio to bridge insufficient liquidity. The manager does not provide any guarantee either in respect of the capital or the return of a portfolio. Certain funds may be exposed to foreign securities and as such, may be subject to additional risks brought about by this exposure. Collective Investment Schemes in Securities (CIS) are generally medium-to long-term investments.  The value of participatory interests (units) may go down as well as up, and past performance is not necessarily a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending up to 10% of the market value of the portfolio to bridge insufficient liquidity. A schedule of fees and charges and maximum commissions is available on request from the manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. The manager does not provide any guarantee either in respect of the capital or the return of a portfolio. Certain funds may be exposed to foreign securities and as such, may be subject to additional risks brought about by this exposure. The PPS Global Equity Fund is registered and approved for marketing in South Africa under section 65 of the CISCA. The PPS Global Equity Fund is a sub-fund of the Prescient Global Funds ICAV. For more information visit www.prescient.ie. PPS Multi Managers has appointed the Capital Group as the Investment Manager of the PPS Global Equity Fund. PPS Investments Group is a division of PPS, a Licensed Insurer and Financial Services Provider. PPS Investments Group consists of the following authorised Financial Services Providers: PPS Investments (Pty) Ltd(“PPSI”), PPS Multi-Managers (Pty) Ltd(“PPSMM”) and PPS Investment Administrators (Pty) Ltd(“PPSIA”); and includes the following approved Management Company under the Collective Investment Schemes Control Act: PPS Management Company (Pty) Ltd (RF)(“PPS Manco”). This document is for information purposes only and does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe for or purchase any particular investments. Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information.  There are risks involved in buying or selling any financial product.