AMPLIFY SCI WEALTH PROTECTOR FUND

Raging Bull Award for the Best South African Multi-Asset Equity Fund on a risk-adjusted basis over five years to December 31, 2022.

AMPLIFY INVESTMENT Partners is a CapeTown-based boutique investment firm headed by Marthinus van der Nest, which outsources the management of its seven unit trust funds and seven retail hedge funds to carefully chosen external fund managers.

The Amplify SCI Wealth Protector Fund is a low-equity multi-asset fund managed by Truffle Asset Management. It is aimed at investors who want an above-inflation return on their investment but need to protect their capital.

At the end of last year, the fund was leading its peers in the low-equity multiasset sub-category over one and five years, boasting an annualised return of 11.11% over five years, over three percentage points above its CPI+3% benchmark of 7.95%. In fact, over five years it had also outperformed all funds in the multi-asset medium-equity subcategory and all but three funds in the crowded multi-asset high-equity subcategory.

Personal Finance put the following questions to Truffle Asset Management:

As a low-equity fund, aimed at risk-averse investors, what is your investment strategy regarding asset allocation and, within the equity allocation, stock selection?

TAM: The primary focus of the fund as a low-equity fund is to generate the target return of CPI+3% while protecting capital over the short term (no negative returns over a rolling one-year period). To achieve this, we build the portfolio from the bottom-up, where each security must at least meet or exceed the CPI+3% return hurdle on a riskadjusted basis.

We are active and agile through changing market cycles. Our asset allocation strategy means we stay mindful of changing risks and valuation opportunities across asset classes and we actively manage the portfolio at a security level to ensure we consistently deliver to the stated objective.

Over the last decade Truffle has delivered consistent alpha in each asset class. The fund therefore benefits from the best selection of securities across all asset classes in addition to benefiting from each asset class’s risk premium.

A major competitive advantage of our approach is our focus on capital protection. Protecting capital during market drawdowns and dislocations through skilful security selection, portfolio construction and hedging has resulted in significant gains for our clients. The power of compounding off a higher base then becomes a major differentiator when market beta returns and risks subside.

To what do you attribute the fund's success in providing healthy returns at low capital risk over the last five years?

We attribute our success to our obsessive focus on understanding the downside risks and not losing capital. We are happy to take on risk, but only where we feel we are being adequately compensated by the quality of returns.

We rigorously stress-test our portfolios to avoid exposure to unintended risks or shocks. This provides clients with an additional layer of protection in the fast-changing world and volatile financial markets.

This focus on the potential downside and understanding the downside risks of owning an asset is valuable in seeking out securities where we believe the returns are skewed to the upside.

How is the changing macroeconomic environment, with higher inflation, higher interest rates and higher stock-market volatility, plus a possible upcoming recession, affecting your management of and outlook for the fund?

Macro-economic forecasting is difficult to get correct with high frequency. While we have a sense of the current macro-economic environment and potential scenarios and outcomes, we try to focus on valuation and what the market is currently pricing into assets. We aim to hold a diversified portfolio of many uncorrelated and attractively valued securities (that is, trading at a discount to their intrinsic value). This tends to be a better predictor of long-term returns, rather than timing the economic cycle.

Iain Power from Truffle, to which the management of the fund is outsourced, and Marthinus van der Nest, head of Amplify, receive the trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg