This Fund of Funds targets outperformance of a composite foreign equity:bond benchmark over rolling five years. Diversification is achieved on an asset class and manager level, but is heavily skewed towards our house-view allocation where we make use of specialist equity, property and fixed interest managers to outperform our benchmark.

The Fund of Funds does not yet have a five-year track record, but since inception has been overweight foreign equities and foreign property. Over the past three years (in rands), foreign equities have (up 13.3%) materially outperformed foreign bonds (up 4.9% p.a.) and foreign property (up 8.6% p.a.). The Fund of Funds has consequently benefited from being overweight foreign equities and foreign property, and underweight foreign bonds, over this period.

This year, despite foreign equities (up 23.1%) and foreign property (up 19.4%) outperforming foreign bonds (up 2.9%), the substantial underperformance of a foreign equity manager (Lansdowne Partners) has detracted from overall returns. We expect the underperformance of this manager to reverse given the high conviction we have in its process. The other active foreign equity managers and passive equity strategy have all helped mitigate this underperformance.

There were no house-view changes to our foreign asset allocation over the past quarter. Monetary conditions globally have eased in response to decelerating global growth (and continued low inflation) resulting in global bond yields falling once more to historically low levels. Despite this, we have done extensive research on various global bond fund options, and will be able to allocate to the asset class should circumstances call for a reduction in the current underweight. Given the restricted SA peer group, we continue to have just 20% of the strategy invested in multi-asset managers.