An analysis by Daily Investor revealed that the performance of PSG’s balance fund outperformed its rivals Allan Gray and Coronation.
Balanced funds are funds that invest in more than a single asset class, like equities, property, commodities, and fixed-income securities in local and offshore markets.
Balanced funds attempt to lower the risk of a fund by using diversification benefits between the asset classes.
They are a good option for investors who have a lower risk appetite than pure equity investors, as they can generate high risk-adjusted returns and limit downswings.
Daily Investor compared the performance of three prominent balance funds by tracking the return of a R100 investment.
- The Allan Gray Balanced Fund
- The Coronation Balanced Plus Fund
- The PSG Balanced Fund
These three funds are in the same ASISA (Association for Savings and Investment South Africa) category – South African multi-asset high equity.
The category sets out the specific weightings the fund allocates to each asset class.
Based on the performance of these funds since July 2019, R100 invested in the PSG balanced fund would have yielded the highest return – R132.
Allan Gray ranked second with R128, followed by Coronation with R123.
It is interesting to note that the PSG fund underperformed the other funds up to the end of 2021, caused by a larger drawdown in 2020. It suggests it has limited downside protection.
It generated strong returns even when compared to a passive and pure equity strategy, with the Satrix balanced index fund and the Top 40 index delivering R121 and R131, respectively.
Further analyses of these funds revealed additional insight into their features.
The JSE top 40 index generated a higher average annual return than the balanced funds. However, it also carries greater risk.
The JSE Top 40 index had a standard deviation of 23% compared to PSG’s 15% – the highest risk of all the balanced funds.
The JSE Top 40 index also had a higher downside risk than the balanced funds, as seen in its semi-deviation – the degree of negative price fluctuations.
When considering performance and risk, the PSG fund generated the highest return per unit of risk, as illustrated by its Sharpe ratio.
The analysis showed that the PSG fund offers strong performance while providing a fair amount of risk reduction through its diversification.
|JSE Top 40
|Average annual return