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Hope is not a strategy – we have to have a plan for all scenarios

Hope is not a strategy – we have to have a plan for all scenarios

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Nick Balkin talks about investing in SA amidst the current threats to stability like a central bank mandate change 

Nick Balkin, newly appointed CIO of Foord Asset Management SA and Multi-counsel Fund Manager of the Nedgroup Investments Stable Fund says while they hope a mandate change of the central bank does not materialise, they still have to be cognisant of, and plan for, the potential consequences. 

“It’s important for us to have diversification in the portfolio that would provide protection from the consequential shock to the South African market in the event of something like a central bank mandate adjustment. Having said that, this is not a stand-alone risk. We think there are many things that present downside risks to South Africa, so we are focussed on protecting the fund against the downside at all times,” he said. 

Investing in a ‘failed state’ – experience counts 

Balkin says that given the risk of South Africa becoming a failed state, there is a significant portion of the fund that is not focussed on South Africa. 

“South Africa is not improving from an economic point of view. The infrastructure is imploding and, coupled with the ongoing power struggles and barriers to transport, it's really hard for businesses to plan anything. However, when it comes to investments, it’s all about the income you get at the end of the day and the South African market is offering some very good valuation entry points. So it’s about finding a balance and this is where understanding the market becomes crucial,” he says. 

In 2022, a year that was extremely tough for global equities, the Nedgroup Investments Stable Fund, at approximately 38% allocation to equities, ended the year in positive territory – a point Balkin references to illustrate the resilience of the fund and its management philosophy through difficult years. 

Not as simple as just investing offshore 

However, with a fund benchmark that is based on Rand CPI, Balkin asserts that it’s not as simple as just investing in any offshore assets. 

“The key for us with the offshore component is to invest in equities that we really trust. The Rand tends to be quite a risky asset itself and we need to find global opportunities that will compensate us for the additional risk of having a portion of the portfolio in a different currency to the benchmark. However, we also have to be aware that we don’t know everything – so we need to diversify by having some SA-incorporated bonds as well.” 

Finding and funding opportunity 

Balkin says there are some interesting shorter duration corporate bond investments on their radar that they have funded by giving up some of the R186 position in the fund over the past year. Commenting on their overall fixed income holdings, he says “If you look at the bond positioning of the fund, although we do have some long duration bonds, we are still very focussed on the belly of the curve.”

 “The R186 is still a significant portion of the fund and we wouldn’t sell out of it completely, but we do use it to fund more interesting opportunities when we see them – one of which is the Sasol convertible bond,” he explains.