Aylett Balanced Prescient fund won:
• Raging Bull Certificate: Best South African Multi-Asset High Equity Fund on a Risk-Adjusted Basis over five years to December 31, 2023
• Raging Bull Award: Best South African Multi-Asset Equity Fund on a Risk-Adjusted Basis over five years to December 31, 2023
Aylett & Co Fund Managers is a boutique asset management firm based in Claremont, Cape Town, founded by Walter Aylett in 2005. The company runs three retail domestic funds and a hedge fund, in association with Prescient, and an offshore global equity fund. It also manages Nedgroup Investments' Bravata Worldwide Flexible Fund.
The certificate and award-winning Aylett Balanced Prescient Fund is benchmarked against the Asisa South African Multi Asset High Equity category average. Personal Finance spoke to portfolio manager Dagon Sachs.
PF: Please explain your philosophy regarding asset allocation, offshore exposure and security selection at asset-class level. You were roughly 70% equities, 23% bonds and the rest cash at the end of 2023. Has this allocation been relatively consistent?
DS: It's important to understand that our approach is different from many. We are fundamentally bottom-up stock/asset pickers, and as such, we assess each asset's activeness based on its own merits. We are benchmark agnostic, and this results in our asset allocation largely reflecting where we have found attractive assets. We are not momentum, macro, or theme driven investors. Said differently, we build the portfolio bottom-up and worry top-down … taking care to avoid concentration risks that make us uncomfortable.
The allocation has been consistent over the last year with not much change. However, the standout feature over the past five years is that we have gone from holding no bonds to holding 26% bonds at one point. This is probably a good reflection of how we are prepared to use the full ambit of the mandate.
Regarding offshore exposure, we have followed a similar philosophy of allowing the money to flow to where we find the best ideas. This occurs on a risk-adjusted basis, and we do so by altering the discount rate to reflect the risks that are inherent in any particular region or country.
PF: To what do you attribute your annualised performance of 13.4% over five years, nearly three percentage points above your benchmark, with less volatility risk than many balanced-fund peers?
DS: Since inception the biggest thing we have got right is avoiding significant mistakes. We are risk-averse and spend most of our time worrying about the downside. That is not to say that we have always got it right, but it has been the differentiator over time.
Being benchmark agnostic gives us the flexibility to invest when we see an opportunity and to pull back when the odds are not in our favour. In other words, there is less temptation to follow the herd.
PF: Are there any specific investments that have stood out for you?
DS: At a stock-specific level, Royal Bafokeng Platinum (RBP) and Reinet Investments have been the standout performers for us over the last five years. We do not tend to trade very much, and those two investments have been big holdings for a large portion of that time (at least until RBP was bought from us).
The other standout performer has been the selective ownership of South African government bonds at times when they presented attractive yields with limited downside.
PF: How do you see investment prospects over the next year or two, both locally and globally?
DS: Crystal ball gazing has never been our strength; however, it would be fair to say that we have measured expectations for South Africa over the next year or two. The positive developments on the energy front need to be weighed against Transnet's declining performance and an election year that always brings about volatility. Chinese demand for our commodities is closely watched and contributes to big price swings in the sector.
In the longer term, it is encouraging to see the amount of oil and gas that has been discovered around and adjacent to our coastlines – a significant tailwind for South Africa if regulators and politicians can stay out of the way.
Globally, it appears that inflation is more under control than was feared a couple of years ago. However, we do have concerns that the market is too optimistic about the quantum and speed of rate cuts. Our job is to think about the downside, and it is not impossible that we see rates staying higher for longer, something that would disappoint the market.
PERSONAL FINANCE