BATELEUR FLEXIBLE PRESCIENT FUND

Raging Bull Award for the Best (FSCA-Approved) Offshore Global Asset Allocation Fund for risk-adjusted performance to December 31, 2022.

BATELEUR CAPITAL is a boutique firm based in Cape Town, founded in 2004. It manages three hedge funds and two unit trust funds under the Prescient license. Its Flexible Fund, which is free to invest across asset classes in any proportion (the only restriction being its offshore exposure at 45% maximum), delivered annualised performance of 9.5% over five years at a lower level of risk than its competitors. The return was comfortably above its benchmark of CPI Inflation plus 4% (8.9%).

In his 2022 report-back to investors, fund manager and Bateleur CEO Kevin Williams noted: “The fund eked out a 1.8% gain net of fees for 2022. We consider this a ho-hum performance at best, with several missed opportunities. However, a key positive is the fund did not lose money in a volatile and challenging global investing environment. As comparatives, the JSE All Share Index appreciated 3.6% including dividends reinvested but before fees. A basket of SA bonds gained 4.3%, while cash returned 4.9%. The global picture was gloomier. The S&P 500 and MSCI World Equity Index both declined 18.1% in US dollars. The World Bond Index fell 18.3%, its worst annual performance on record, while the US Treasury Index declined 12.5%.”

At the end of 2022, half the portfolio was in local equities, 25% in foreign equities, about 9% in local bonds and the rest in local and offshore cash. Its top equity holdings were: Bidcorp, British American Tobacco, TotalEnergies, Naspers and Adcock Ingram.

Personal Finance put the following questions to Williams:

What is your investment philosophy/ strategy for the fund regarding asset allocation and stock choice?

KW: The fund is predominantly an equity/ cash fund. Asset allocation is determined by considering both top-down macro factors (such as the direction of interest rates and quantitative easing) and bottom-up factors (such as equity valuations). For example, if economies are entering a tightening monetary phase and equity valuations are elevated, the fund would generally increase its cash weighting at the expense of equities.

Recently, the fund has also held SA government bonds, as the yield differential between longer-duration bonds and shortterm money market rates was unusually high, providing an attractive entry point.

Stock selection is fundamentally driven through Bateleur’s bottom-up research process.

To what do you attribute the fund’s excellent risk-adjusted performance over the past five years?

By sticking closely to our investment philosophy and not being overly influenced by market noise. We are especially focused at trying to minimise mistakes and avoid permanent capital loss.

Are there any particular investments that have stood out for you?

Within South African equities the fund had sizeable exposure to African Rainbow Minerals (ARI) and RMI Holdings (recently renamed OUTsurance). We would consider both as differentiated fund holdings. ARI benefitted from record profits from its coal operations, while significant value was unlocked in RMI via the unbundling of Discovery and Momentum Metropolitan.

Within global equities, the fund benefited from meaningful exposure to the oil and gas sector via TotalEnergies. Pharmaceutical giant Merck, which owns the blockbuster cancer drug Keytruda was also a notable contributor.

How are you positioning the fund going forward, taking account of ongoing worries around inflation, rising interest rates and a possible global recession?

Although global equities de-rated over 2022 and now trade in line with long-term averages, we remain concerned about corporate earnings growth – especially in the current high-interest-rate environment. The fund is resultantly conservatively positioned with a high cash weighting and a bias towards quality equities with predictable cash flows.

Warren Riley, analyst and portfolio manager (left), and Amanda van Zyl, head of operations and client liaison at Bateleur Capital, collect their trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg