INVESTEC WORLD AXIS CAUTIOUS FUND

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

INVESTEC’S World Axis funds fall under Investec Wealth & Investment International, a company registered in Guernsey. They are denominated in US dollars.

The Cautious Fund is a low-equity multi-asset multi-managed fund aimed at preserving capital and providing income; at the end of 2022, 24% of its portfolio was in equities. Over five years it returned an annualised 1.9% in US dollars.

Investment managers Ryan Friedman and Riaan Wagner answered the following questions from Personal Finance:

Please state the objectives of the fund and describe your investment approach regarding asset class allocation and selection of underlying funds.

RF & RW: The investment objective of the Investec World Axis Cautious Fund is to provide investors with capital growth and income over the long term, while aiming to outperform the fund benchmark (the Morningstar Cautious Allocation Average) over three-year rolling periods. A second objective is to outperform dollar cash over rolling three-year cycles. These objectives are achieved through a long-term investment approach which emphasises selecting some of the world’s finest active managers; tactical asset allocation based on our in-house view of the macro-economic environment; blending managers appropriately to reduce risk without infringing on performance; and performing stringent due diligence on all managers.

To what do you attribute the fund's superior risk-adjusted performance over the five years to the end of 2022?

This was driven by our tactical asset allocation as well as manager selection. The largest positive contributor was being underweight in global fixed income, as the Bloomberg Global Aggregate Index dropped 1.3% per year over the past five years. Our fixed-income managers protected capital exceptionally well, with four of our five managers delivering positive USD returns over the period. Furthermore, our global equity managers managed to outperform the MSCI World Index, led by our value and thematic investment managers.

2022 was a rough year for investors –how did you go about navigating it?

During the first quarter of 2022 we progressively cut equity exposure, culminating in the lowest equity weighting (24%) we have run since the inception of the fund in 2012. This was in light of our assessment that the risk-return trade-off for global equities was particularly poor, given heightened geopolitical risk and complicated central bank policy at that point. Subsequent to that tactical downweighting, the MSCI World Index fell over 12% over the following few weeks.

Having entered 2022 with very little developed-market government bond exposure, we increased exposure to fixed income throughout most of 2022 as yields began to normalise.

Since the beginning of December, we have again downweighted our position in risk assets.

How are you positioning the fund going forward, considering worries about a global recession, inflation, and high interest rates?

We continue to believe that the US economy is capable of a soft landing, albeit that growth will slow materially. In the UK and Europe, the slowdown is more a function of food and energy prices spiking while consumer confidence has fallen.

In equity markets it will feel like a recession, even if the economy avoids one, because the parts that are slowing the most are the ones the equity market is most exposed to. In other words, we are likely to have an earnings recession, and the market has not priced this in, in our view.

We are very overweight in fixed income, across both government bonds (developed and emerging markets) and credit. Given our view of markedly slower growth in 2023, together with a sharp fall-off in inflation in the short term, government bond yields have the potential to fall, especially in the US.

In general, with higher yields today across the curve and credit spectrum, we feel that the opportunity cost of being underweight equities and overweight both short- and long-duration fixed income is materially lower than it was 12 months ago – even if our view on equities proves incorrect.

Portfolio manager Riaan Wagner and Ryan Friedman, head of multi-manager investments at Investec Wealth and Investment, collect the trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg