Page 174 - Profile's Unit Trusts and Collective Investments 2021 issue 2

CHAPTER 9

incremental returns with a view to somewhat offsetting the management fee. Strict cash
management allows the fund to track the FTSE/JSE Top 40 Index with minimal tracking error and
to ensure maximum practical exposure to the index at all times.
Please comment on the year ahead and, if possible, estimate the performance of your fund
over 2 or 3 years. What are your targets and objectives for the year ahead?
The fund aims to replicate the performance of the FTSE/JSE Top 40 Index. We therefore expect
the fund to deliver a performance in line with its benchmark in the coming year. The share price
performance for Anglo American, BHP Billiton, Richemont and Naspers/Prosus will be a key
driver of the FTSE/JSE’s Top 40 performance, given their large weight in the index.
Are equity markets in general overpriced? Do you anticipate a significant correction or will
the bull run continue?
Globally, extremely high developed market fiscal and monetary stimulus, which is being
sustained (and in the case of the USA, increased) into the recovery phase, are providing a powerful
support for financial markets and have led to dramatic increases in general asset prices. As a result,
many global markets are looking expensive and we would expect increased volatility when fiscal
stimulus inevitably wanes, if inflation emerges, and when interest rates rise from their extremely
low levels.
Despite the much-improved global recovery backdrop and mining cycle, together with the
buoyant agricultural sector, RSA still considerably lags from a growth perspective. JSE-listed
companies that are exposed primarily to the non-commodity parts of our local economy are likely
to remain challenged and face poor growth prospects. There are, however, areas of significant value
within the SA market and good stock selection will be key to deliver outperformance.
Within the SA context, we expect companies with stronger balance sheets, better business
models and flexible, more adaptable management teams to outperform in the recovery period. We
believe the outperformance will be even more pronounced in the face of a weaker economy in the
years ahead.
As a passive fund, what advantages, in your view, does the underlying index you track offer
investors?
This fund is suitable for investors who are seeking to own the JSE/FTSE Top 40's entire stock
selection at a very low cost, and who seek long-term capital growth with no short-term income
requirements.

Momentum International Income Fund

Sector: Global–Interest Bearing–Short Term
Fund manager: Momentum Global Investment Management
Benchmark: 1/3 US 12 month Libor, 1/3 UK 12 month Libor, 1/3 Euro 12 month Libor

Returns to investors 1 year 3 years
Momentum International Income Fund (13.54%) 1.66%
Sector Average (15.00)% 1.95%
Inflation (CPI) 4.87% 3.85%
ProfileData performance stats to 30 June 2021: CAGR with dividends reinvested
Please describe your investment universe.
This is essentially a money market portfolio, and we have a reasonable amount of flow, so we
need to keep the portfolio liquid at all times. That means we keep maturities short – always under a
year – and maintain high quality to mitigate any mark-to-market pricing. With that in mind we
only purchase investment grade rated bonds, and because the benchmark is split one third to each
of the US dollar, euro and pound sterling, we only buy bonds issued in those currencies. We buy
mostly corporate and financial paper as well as sovereign bonds or bills, and we also use some
third-party liquidity funds to manage residual cash and liquidity.

172 Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts