Note: Given this fund’s objective, the manager recommends a minimum time horizon of four years for it to achieve its strategic objective.

The H4 Diversified Fund (‘the fund’) delivered 1.8% in Q4-2019, and has delivered 12.7% versus 8.3% for its SA CPI +4% p.a. benchmark over the past year. In terms of the major asset classes to which the fund was exposed during the quarter, the local equity market (measured by the FTSE/JSE All Share Index) gained 4.6%, slightly behind the FTSE/JSE Capped Top 40 Index (to which the fund is exposed) which was up 5.2%. Local bond prices (All Bond Index) ended the quarter up 1.7% despite the Moody’s rating agency’s announcement of a downgrade in the country’s rating outlook from Stable to Negative; while the local listed property market (FTSE/JSE SA Listed Property Index) gained 0.6%. Global equities (MSCI All Country World Index in US dollars) delivered 9% during Q4-2019’s renewed risk-on phase; while global listed property (MSCI World REITs Index in US dollars) was flat. During the quarter the rand strengthened 8.4% versus the US dollar; detracting significantly from the performance of global assets when measured in rand terms.

One of the stated primary objectives of the fund is to achieve capital appreciation over the medium term, at a risk level roughly half that of a pure equity investment. When measured over the past one and three year periods, the fund’s standard deviation (which is a generally accepted measure of risk/ volatility) was 5.2% over 12 months and 7% over three years. This compares reasonably well with the local equity market’s standard deviation of 10.5% over one year and 11.5% over three years, and global equity measured in rand’s standard deviation of 25.8% over one year and 22.3% over three years.

There were no marked asset allocation changes in the fund during quarter. The manager essentially used net inflows to increase the fund’s offshore exposure and further trimmed domestic preference shares into strength. In terms of foreign currency exposure, the manager initiated a new zero cost currency hedge during August on a portion of the fund’s offshore exposure in order to protect it from possible marked rand strength. This protection was in place until mid-December 2019. At quarter-end, the fund held a diversified mix of assets which the manager deems appropriate for the current investment climate. Sizeable exposures included domestic bonds, domestic and global equity, domestic and US protected equity, and domestic and global listed property. The fund continues to adhere to its policy.