Momentum Int Conservative Feeder comment - Jun 14
The Momentum International Conservative Feeder Fund, which invests solely in the Momentum Global Cautious Fund, is designed to provide investors with a balance between the stability of bond returns and some potential for participation in equity market strength. This fund uses asset allocation to take advantage of valuation opportunities in the markets, in a manner that is consistent with all the managed solution funds. Year-to-date, we have been active on the fixed-income allocation of the fund, electing to increase our exposure to investment-grade debt. This section of the fixed-income market continues to represent reasonable value and our position was funded from the cash balance of the fund. As a consequence, the overall cash level has been reduced. Over the quarter, the fund returned 2.5% net of all fees, compared to a benchmark return of 4.33%. Over one, three and five years, the fund has added 15.70%, 19.92% per annum and 11.62% per annum respectively. Main contributors to relative performance were the overweight to emerging market equity and the use of credit over government debt. The rand's depreciation to the US dollar (0.91% over the quarter, 7.7% over one year and 16.29% per annum over three years) also contributed positively to fund performance.
The main detractor from relative performance, in a period where both equity and bond markets added value, was the overweight to cash. While cash is presently a drag on portfolio returns, we believe that it will serve a valuable purpose in the portfolio as a store of value as and when interest rates start to rise.
The fund remains neutral to equity markets, with an overweight position to emerging market stocks. This is a position that we have added to in recent months. Year-to-date, developed and emerging market equity returns are in line, whereas, in the first quarter, the latter was some way behind, demonstrating the catch up that has taken place in the last quarter. Furthermore, the fund remains underweight to government paper as, on a long-term view, we do not see compelling valuations available in this area of the fixed-income market.
Going forward, while there is greater optimism around the outlook for growth in the developed world, this brings with it the increased chance of tightening credit conditions as these economies recover. This quarter proved similar to other recent quarters in the sense that central banks continue to try to manage expectations within the market. However, their comments, given the level of scrutiny that they are placed under, sometimes serve to cause less certainty about the path of interest rate policy. The ultimate withdrawal of monetary stimulus, especially from these extraordinarily elevated levels, could have unintended consequences for investment markets and, as a result, we believe that investors should look to retain a prudent level of diversification in their portfolios. Overall, we believe that the fund is well positioned to take advantage of future opportunities in the markets as they present themselves.
Furthermore, while it is uncomfortable at the time, volatility provides valuation opportunities for disciplined investors and our overweight to cash provides a ready source of liquidity, which can be invested in opportunities as and when they arise.
The RMB International Conservative Fund of Funds is managed on a very conservative asset and geographical allocation basis. It endeavours to provide positive, absolute returns (in US dollars) over the medium-term. The fund has a cash and fixed-interest bias but the mandate allows for controlled exposure to funds investing in listed equity investments. The maximum allocation to equities is 25%.