Despite our more prudent approach which results in us being on average 75% invested in equities the Value Trend fund is remains top of its class over both one and three years to June 08. Over three years it is in the top 3.5% of all 427 Unit Trusts. Equally important to us is that the fund continues to have the lowest volatility out of the best 50 funds over the same period. The fund has achieved a return of 33.7% per annum which is much above the median return in the sector of 20.3% over the same period.
The Tale of Two Markets
The fortunes of inward and outward focused shares have diverged quite considerably over that past 6 months.
Whilst valuations look great, the shares that are dependant on the local economy are faced with a toxic combination circumstances. Higher interest rates, a booming current account deficit and a weak local economy are not a good combination for these counters.
The resources sector continues to power ahead. Driven by a booming China, high commodity prices and corporate action, the fundamental picture looks good for this sector. However we feel that the overall risk reward equation dictates caution and therefore we have allocated 30% of the fund to this sector but would not want to go higher.
We have 20% of the fund in international currencies and believe that this will be an exiting source investment returns for us going forward.
This leaves us with over half the fund in cash. When we find interesting investment ideas that will make money with an acceptable risk reward ratio, we will deploy the cash. For now caution remains the watchword.
Risk return, do we still measure up?
The first half of 2008 was not the best time for equity markets, South Africa included.
During this time of market volatility the fund reached a new high of 2676.24 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 33.65% per year 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.