This fund tracks the PPS Balanced Index, which has a static allocation to various asset classes and uses passive building blocks to match the index return. The fund is constructed with an optimised asset allocation through the cycle to, over the long-term investment horizon, provide a lower volatility but be competitive in the peer group.

Over the five-year investment horizon of the fund, SA equities (up 3.4% p.a.) have materially underperformed foreign equities (up 13.1% p.a.) and our expectation for this asset class, while SA nominal bonds (up 8.3% p.a.) and SA cash (up 6.8% p.a.) have both delivered returns that comfortably exceeded CPI (averaging 4.9% p.a.). The poor performance of SA equities has resulted in most funds in this sector not meaningfully outperforming inflation over this period. This fund has however not yet reached its fifth anniversary.

Year-to-date, foreign equities (up 22.5%) have substantially outperformed SA equities (up 1.4%), while SA nominal bonds (up 8.4%) have outperformed both SA cash (up 5.2%) and SA inflation-linked bonds (up 3.5%). Within SA equities, industrials (up 11.1%) and resources (up 10.5%) have significantly outperformed financials (down 1.6%). Large cap rand hedge counters with significant offshore earnings have driven the industrial sector, while resources have been driven by spot commodity prices remaining higher than expected (despite global economic growth continuing to decelerate).

The fund had an annual rebalance during the quarter which re-aligned the asset classes to the target benchmark weights.

Quarterly Commentary

After a difficult 4th quarter in 2018, markets were more upbeat in the 1st quarter of 2019. For these two periods, the FTSE/JSE Capped SWIX Index for local equity returned 3.8% and +3.9% respectively and the MSCI All Country World Index for global equity provided rand-based returns of 11.3% and +12.5% across the two quarters. Local nominal bonds also contributed with a return of +3.8% for the year to date. These three asset classes constitute the largest holdings in the PPS Balanced Index Tracker Fund, so the reversal in market conditions brought about returns of 4.2% and +4.7% for the A2 class of the fund during the last 2 quarters. This turn of events serves to illustrate the importance of maintaining a long-term view amid the uneasiness of short-term market fluctuations.

Investors in the PPS Balanced Index Tracker Fund experience consistent exposure to important asset classes throughout the market cycle, thereby avoiding the errors that stem from emotional biases or mistiming the market.