Growing out of Extinction

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Despite our more prudent approach which results in us being on average 75% invested in equities was are currently the number one fund on the Domestic Flexible Allocation Section and number thirteen out of all funds rendering a 32.4% annualised return over a 3 year period (University of Pretoria Unit Trust Survey). The share selection together with a prudent cash level given the turbulent market conditions has rendered a comparatively healthy return.

Growing out of extinction

A notable milestone has been reached in South Africa, many pumps are straining with a petrol price over R 9.99 per liter. This is a powerful symbol of a difficult world problem.

The pace of world economic growth has resulted in an increase in demand for basic materials which has outstripped the rate of increase in production. Commodities, ranging from iron ore to maize, have shown enormous price increases over the past few years and inflation is starting to rear its ugly head again after being considered extinct in well run economies.

This all begs the question: Is the world economy hitting the limit of growth can be achieved without all sorts of imbalances arising?

World GDP growth may have to slow to a more sustainable rate.

We believe that Brazil, Russia , India and China ( BRIC’s) are likely to keep on a high growth trajectory. The USA, UK and to a lesser extent Japan will experience lower growth to balance the equation. Continental Europe should do well, due to the amount of machinery they export. The strong Euro will take some of the edge off this.

In our opinion the investment implications for us are as follows:
Inflation in South Africa needs to be brought under control. The local economy will feel the pinch for the next 18 months. Be on standby to buy some bargains.
Invest in the BRICS.

Invest in companies that sell to the BRIC’s. This applies to commodities as well as equipment. We like the commodity story but a risk-averse strategy dictates against a bigger weighting for our type of fund.


Risk/Return – How do we measure up?

The first quarter of 2008 was not a good time for equity markets, South Africa included. During this time of market turmoil the fund reached a new high of 2510.19 cents. The graph below clearly captures what we are attempting to with the Rezco Value Trend Fund


This graph sourced from Micropal (S&P) reflects all Unit Trusts with a three year record.
The vertical axis = annual return
The horizontal axis = shows risk (as measured by standard deviation).
The red dot is the Rezco Value Trend Fund. As can be seen we have achieved a return of 32.39% per annum over three years, this is in the best 3% of all the 415 funds measured. Our risk or volatility is however the lowest or best out of the top 50 funds measured. We believe that the job of the fund manager is one of continually balancing risk and reward and thereby not only growing but protecting investor capital