GRYPHON PRUDENTIAL FUND
- Certificate for the Best South African Multi-Asset High Equity Fund (risk-adjusted performance over five years to December 21, 2021)
- Raging Bull Award for the Best South African Multi-Asset Equity Fund (risk-adjusted performance over five years to December 21, 2021)
Gryphon Asset Management is a boutique investment firm based in Bellville, Western Cape, with over 20 years’ investment experience. It offers six unit trust funds, including its Prudential Fund in the South African multi-asset high-equity category. This fund delivered a solid annualised return of 10.9% a year over five years for its investors, at far lower risk than other funds in the multi-asset high-equity peer group.
Personal Finance put the following questions to the fund’s managers, Abrie du Plessis and Reuben Beelders:
Although classified as a high-equity fund, the fund currently has no exposure to equities, nor to bonds, with 90% of assets in offshore and local cash and 10% in gold. Can you explain your investment philosophy/strategy?
The Gryphon investment philosophy purports that, in an efficient market like ours, it is easier, more reliable and consistent to add value through asset allocation than through stock selection.
Historically, equities has been the asset class most likely to deliver inflation-beating returns. That said, there is a time to be out of equities and protect capital in safe-haven assets until it is time to get back into the market. We are agnostic as to a preferred asset class and believe there is a time for each. We believe in committing fully to whichever asset class offers most relative value; this means we will either be 100% exposed to equities or hold no equities at all. This is a major contributing factor to our respectable risk-adjusted returns.
Our asset allocation decisions are informed by historical, data-based indicators that identify the various economic, business and investment cycles.
The fund has managed to outperform its benchmark of CPI + 5% over five years by an extra 1.5%. To what do you attribute this outperformance?
We moved out of equities at the end of August 2018, reflecting our need to protect the fund from market volatility. The fund delivered 10.9% per year since the move out of equities. This matches the 10.9% delivered by equities over this same period, the difference being that the equity return comes with much greater volatility.
The annualised cash return over the same period was 5.7%; we clearly outperformed cash. This was the result of preserving capital during the market drawdown of -21% triggered by the Covid-19 crisis in March 2020, and then taking advantage of the attractive yields delivered by SA government bonds bought when South Africa was downgraded by international rating agencies.
Being out of equities does not mean just sitting idly in an unremarkable money market account – the outperformance achieved is a result of making the cash “sweat”.
Do you intend to stick largely with the current asset allocation for 2022, or will changing conditions necessitate exposure to other asset classes?
Our indicators signal high levels of risk in the market at the moment – this suggests an inflection point in the current cycle and, if so, all risk assets will be affected. While some local assets are actually quite cheap, developed markets assets are not, and all risk assets usually get tarred with the same brush. Historically, when asset classes have traded at the levels we see currently, subsequent returns have been below par and/or very volatile.
Because of our focus on the protection of capital, our preference is thus to remain de-risked and out of equities at the moment. While mindful that cash is a low-yielding asset, it offers investors downside protection and also means that we keep our powder dry and are able to take advantage of opportunities which can appear suddenly in volatile markets like these.
PERSONAL FINANCE