A value is required.
24 Jan 2018


One of our clients queried us last week concerning the 9% loss of his investment in our Kanaan Hedge FoF over the past 2 years. It is true that our Hedge FoF has been the worst performer of our 3 FoF’s over the past few years, but our experience over the past 23 years, since we have started to manage FoF’s is that our Hedge FoF is now the best place to invest, as the underlying funds that we have picked are some of the best hedge funds in South Africa.

According to the graphic analyses of our Hedge FoF, see the dark blue line, you will notice that the fund had reached its high by the end of 2015, but even taking the underperformance of the past two years into account, the annualised return is still more than 12% per annum, two times better than the money market. We are positive about the Hedge FoF for 2018. If you want to beat the lower rates of the money market or a savings account you do not have any other option but to go for growth funds, which can go negative for more than one year.

At this link you will notice that the fund had a negative rate of return beginning 2013 and got into a profitable situation only a year and a half later, during middle 2014.

We have spoken to the managers of the underlying funds of our Hedge FoF, and all of them are positive for 2018.  With the newly elected president of the ANC, Cecile Ramaphosa, getting more and more traction, behind the newly excellent board of Eskom etc.  South Africa is seen as the next likely emerging market big story.  Claire Bisseker of the Business day said: “Global investors are looking for the next hot emerging market ticket and South Africa is the favourite candidate.  Given the potential for an economic revival under Cecile Ramaphosa” We are seeing the first signs of a turnaround with the Larium Hedge fund already at 2.10% for the first two weeks of January and we believe one should be patient with the Hedge Funds and not go irresponsibly for the first high growth fund you have heard about.

Our Hedge fund investors should take cognisance of the extract below of Maggie Mahar’s book concerning FOMO Fear.

FOMO or Fear of Missing Out, is pervasive

Here's a great example of Fomo in action from the book Bull: A History of the Boom and Bust, 1982-2004 written by Maggie Mahar:

In Florida, Ed Wasserman took the bait only at the very end of the decade. In the spring of 2000, the 50-year-old business writer finally broke down and invested in a hi-tech fund. "By disposition, I'm a value investor," said Wasserman.

"I had a lot of scepticism, but finally, I succumbed. In the spring of 2000, I went into my local brokerage firm and said to these guys: 'Why did I only make 12% last year, when other people are making 50%.' And they said, 'We have this very aggressive fund.'

“This aggressive fund that my broker is offering puts me into companies like Quest, Oracle, Cisco – these aren’t little companies with no revenues – they are Blue Chips. So I buy in. It was March of 2000.” 

That month, the Nasdaq began to crater.

“I lost two thirds of the money”.

The more responsible way to go for high growth Funds.

If your risk profile is right, in other words you can stomach the ups and downs of high growth funds and your circumstances are also right. You mustn’t be close to a situation of retirement or the funding of your children’s University costs, etcetera, where you may need your investment directly after a correction.

High Growth funds via a segregated mandate.

Some clients have been asking us, over the past 2 years to invest their capital in funds with higher growth rates. We are managing funds personalised for these clients, for the same fees, but we always warn older clients not to move all their investable capital to these segregated managed funds. It is true that we have been able to switch high growth funds timeously to cash over the past three decades, with reference to the 1987 crash, the Far East Pacific Crash of 1998, the IT Bubble Crash of 2000 and the credit crunch crash of 2008, but we can give no guarantees. If a certain high growth quality fund, which we are managing crashes, because of a local market crash or a global market crash and we have not switched timeously to cash, one will have to buy and hold, in a situation where these funds can crash with more than 50%, until they make a comeback, which can take up to two years.

Friendly greetings

Andre Delport

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