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Sanlam Investment Management
Balanced Fund

You’ve heard it before: when it comes to investing, never put your shares in one basket. But how do you choose between different shares, listed properties, bonds and offshore assets? Wouldn’t it be great if a professional could choose the most promising assets for you?

Quick Facts About The Fund*

Sanlam Investment Management (SIM) Balanced Fund

Launch Date: 01 July 2004
Fund Size: R17 605.3 million
Benchmark: Mean of the ASISA SA Multi Asset High Equity Category
Time Horizon: 3 – 5 years
*As at 30 November 2017
Risk Profile: Moderate
Fund Classification: SA - Multi Asset - High Equity
Min Investment Amount: Lump sum: R10 000 | Monthly: R500
Total Expense Ratio (TER): 1.68%
Launch Date: 01 July 2004
Fund Size: R17 605.3 million
Benchmark: Mean of the ASISA SA Multi Asset High Equity Category
Time Horizon: 3 – 5 years
Risk Profile: Moderate
Fund Classification: SA - Multi Asset - High Equity
Min Investment Amount: Lump sum: R10 000 | Monthly: R500
Total Expense Ratio (TER): 1.68%
*As at 30 November 2017

Fund Strategy

Typically this fund will hold a large weighting in JSE shares with a maximum equity exposure of 75%. Capital exposure will also include investments in money market instruments, bonds, listed property and up to 25% in offshore assets. Fund risk is lower than that of a pure equity fund. This portfolio may also invest in participatory interests of underlying unit trust portfolios.


Illustrative Cumulative Growth of an investment of R100

Performance

Annualised Total Return on a rolling monthly basis
(as at 30 November 2017)
Retail Class Fund (%) Benchmark (%)
1 year 13.59 12.56
3 year 7.4 7.07
5 year 10.55 9.78
10 year 8.79 8.35

Annualised return is the weighted average compound growth rate over the period measured
Highest and Lowest Annual Returns over 10 years
Highest Annual % 18.77
Lowest Annual % (16.67)

Minimum Disclosure Document (Fund Fact Sheet)

Quick Facts

Performance Fees FAQ

Illustrative Cumulative Growth of an investment of R100

Sanlam Investment Management (SIM)
Balanced Fund
(ASISA) South African Multi Asset High Equity

Source of graph : Morningstar Direct

This graph illustrates how an investment of R100 would have grown had you invested for the time period displayed. Like everything in life, all investments can change and come with some degree of risk. That’s why we need this disclaimer, to tell you that past performances are not necessarily a guide to future performances, and that the value of investments/units/unit trusts may go down as well as up. The performance shown by this graph happened in the past and is not guaranteed. The performance is calculated by taking into account initial and ongoing fund manager fees and assumes that you reinvested all the income earned by the fund over this period.

The other line on the graph is for the performance of the designated benchmark of the fund – normally either an index or other funds in the industry that are comparable to the fund you’ve chosen.

The Manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate. The actual fund performance can be viewed on the Minimum Disclosure Document. Annualised return is the weighted average compound growth rate over the period measured.

1. Sanlam World Eq 13.23%
2. Naspers -N- 10.06%
3. SIM Property Fund 7.47%
4. SIM Enhanced Yield Fund Class B3 (D) 6.59%
5. Sanlam World Equity Tracker Fund Class I USD 3.77%
6. BTI Group 2.60%
7. Sanlam Europe (ex UK) Equity Tracker Fund Class I 1.91%
8. Sasol 1.89%
9. MTN 1.85%
10. FirstRand / RMBH 1.81%
Cash And Money Market Assets
International Assets
Equities
Bonds 3 - 7 Years
Bonds 0 - 3 Years
Bonds 12+ Years
Property
Bonds 7 - 12 Years
Preference Shares
Exchange Traded Funds
1. Sanlam World Eq 13.23%
2. Naspers -N- 10.06%
3. SIM Property Fund 7.47%
4. SIM Enhanced Yield Fund Class B3 (D) 6.59%
5. Sanlam World Equity Tracker Fund Class I USD 3.77%
6. BTI Group 2.60%
7. Sanlam Europe (ex UK) Equity Tracker Fund Class I 1.91%
8. Sasol 1.89%
9. MTN 1.85%
10. FirstRand / RMBH 1.81%

Frederick White

Head - Balanced Funds

Over and above managing the SIM Balanced Fund, Fred has been the Head of Asset Allocation and Macro Research at Sanlam Investments since 2008. Up until then, he was Head of Resources, Strategy, and Process and Research. Fred holds an M.Eng from Stellenbosch University, is a qualified charted financial analyst (CFA) and obtained an MBA from Stanford University in 1996. Prior to joining Sanlam Investments, Fred held various roles at Investec Asset Management, including the Head of Resources.

Ralph Thomas

Ralph was appointed to his current role as portfolio manager in Balanced Funds in 2016. Ralph has more than 12 years of financial services experience specialising in multi-asset structuring. Before joining the Sanlam Group, Ralph was a director at Deutsche Bank AG (South Africa) and a senior manager at Standard Bank. Through prior roles, Ralph has gained extensive experience in trading, structuring, research and analysis across asset classes within global financial markets

Ralph holds a B.Business Science from the University of Cape Town, and obtained an MBA (cum laude) from University of Cape Town (GSB) in 2014.

Frederick White

Head - Balanced Funds

Over and above managing the SIM Balanced Fund, Fred has been the Head of Asset Allocation and Macro Research at Sanlam Investments since 2008. Up until then, he was Head of Resources, Strategy, and Process and Research. Fred holds an M.Eng from Stellenbosch University, is a qualified charted financial analyst (CFA) and obtained an MBA from Stanford University in 1996. Prior to joining Sanlam Investments, Fred held various roles at Investec Asset Management, including the Head of Resources.

Ralph Thomas

Ralph was appointed to his current role as portfolio manager in Balanced Funds in 2016. Ralph has more than 12 years of financial services experience specialising in multi-asset structuring. Before joining the Sanlam Group, Ralph was a director at Deutsche Bank AG (South Africa) and a senior manager at Standard Bank. Through prior roles, Ralph has gained extensive experience in trading, structuring, research and analysis across asset classes within global financial markets

Ralph holds a B.Business Science from the University of Cape Town, and obtained an MBA (cum laude) from University of Cape Town (GSB) in 2014.

Traditional Investing (when you invest via a Financial Adviser or other)

Retail Class (%)

Advice initial fee (max.) 3.42%
Manager initial fee N/A
Advice annual fee (max.) 1.14%
Manager annual fee 1.25%
Total Expense Ratio (TER) 1.68%

Advice fee | Any advice fee is negotiable between the client and their financial advisor. An annual advice fee negotiated is paid via a repurchase of units from the investor.

This fund is also available via certain LISPS (Linked Investment Service Providers), which levy their own fees.

The portfolio manager may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down.

Sanlam Reality members may qualify for a discount on the Manager annual fee.

Total Expense Ratio (TER) | PERIOD: 1 October 2014 to 30 September 2017
Total Expense Ratio (TER) | 1.68% of the value of the Financial Product was incurred as expenses relating to the administration of the Financial Product. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER may not necessarily be an accurate indication of future TER’s. Inclusive of the TER of 1.68%, a performance fee of 0.29% of the net asset value of the class of participatory interest of the portfolio was recovered.

Transaction Cost (TC) | 0.15% of the value of the Financial Product was incurred as costs relating to the buying and selling of the assets underlying the Financial Product. Transaction Costs are a necessary cost in administering the Financial Product and impacts Financial Product returns. It should not be considered in isolation as returns may be impacted by many other factors over time including market returns, the type of Financial Product, the investment decisions of the investment manager and the TER.

Total Investment Charges (TER + TC) | 1.83% of the value of the Financial Product was incurred as costs relating to the investment of the Financial Product.

Manager Performance Fee (incl. VAT) | Performance Fee Benchmark: Mean of the ASISA SA Multi Asset High Equity Category, Base Fee: 1.25%, Fee at Benchmark: 1.25%, Fee hurdle: Mean of the ASISA SA Multi Asset High Equity Category, Sharing ratio: 20%, Minimum fee: 1.25%, Maximum fee: 2.85%, Fee example: 1.25% p.a. if the fund performs in line with its Performance Fee benchmark being Mean of the ASISA SA Multi Asset High Equity Category.

The performance fee is accrued daily, based on performance over a rolling one year period with payment to the manager being made monthly. Performance fees will only be charged once the performance fee benchmark is outperformed and only if the fund performance is positive. A copy of the Performance fee Frequently Asked Questions can be obtained from our website www.sanlamunittrustsmdd.co.za.

When you invest online

Our smart online system is working to make investing more profitable for you. The management fee you pay is based on the fund selected and calculated on your total contributions, and then applied to the overall value of your portfolio.

YOUR INVESTMENT WILL NOT CHARGE THE FOLLOWING FEES

  • No initial account set-up fees – usually charged at 2%.
  • No switching fees
  • No exit fees
  • No account changes fees
  • No rebalancing fees
  • No commissions
  • No debit order fees
  • No fund manager rebates

SO YOU’RE ONLY CHARGED THE RELEVANT FUND-MANAGEMENT FEE

Sanlam Investment Management (SIM) is the local active asset management house within Sanlam Investments. When choosing a fund managed by us, you have on your side one of SA’s largest and most reputable, risk conscious investment teams, consistently meeting or exceeding our benchmarks. Sanlam Collective Investments has appointed SIM as the asset manager for its unit trust funds, catering for the full spectrum of risk profiles.

Overview and Asset Allocation

Economic indicators continue to indicate synchronised global growth, with positive signals from a broad range of cyclical indicators such as purchasing managers’ indices, consumer sentiment, commodities and consensus GDP numbers. This is resulting in continued positive earnings revisions, which is further supported by actual GDP and earnings announcements. Given that this is happening while global policy rates are either kept stable, or raised very modestly, growth assets continue to see support and in the past quarter, growth assets again delivered strong returns, especially in emerging markets where there should be much benefit from synchronised growth.

It is difficult to find a high probability scenario under which developed market bonds will provide any form of real return in the foreseeable future. These bonds are offering low or negative prospective real yields and, in addition, their yields are more likely to rise than fall, due to the quantitative easing policies of central banks coming to an end. The low prospective returns from foreign fixed-interest assets continue to support valuations of foreign growth assets, despite them looking expensive by historical standards on most traditional measures. As long as global interest rates remain low or rise slowly and earnings don't contract, the current pricing levels for equities can be rationalised and hence could be maintained, with equities likely to continue delivering superior returns relative to fixed-interest assets. For this reason, we have retained a moderately high position in foreign equities and continue to avoid global bonds.

The US equity market is expensive in our opinion. US companies have, on average, also become riskier during the last few years as they issued debt to buy back stock. European equities remain cheaper on various valuation measures. We therefore continue to have a bias towards Europe within our global equity allocation. We have added a bit of exposure to emerging markets, which should continue to gain from the synchronised global growth. We also retained a small exposure to a select basket of developed market real estate investment trusts (Reits). This is due to a lack of attractively priced alternative investment opportunities. The properties we own typically have an average dividend yield of around 6%, which is fair if a real return of about 4% is required.

In the local markets we experienced much volatility due to a combination of a surprise, yet sobering medium-term budget speech, a further credit downgrade and the ANC elections. The equity market was also rocked by the Steinhoff saga and impacted by a significant see -saw move in Naspers. By mid-quarter the rand was significantly weaker and bond yields had spiked, but post the ANC elections these had turned around and bonds ended the quarter almost at the same yield to where they started, while the rand ended up much stronger.

Equities, on the other hand, had a strong start to the quarter, helped by a buoyant Naspers and the weaker currency. However, the asset class gave back some of those gains in the second half of the quarter, with Naspers pulling back by 15% from its peak and Steinhoff losing more than 90% of its value. Despite the latter-half weakness, both equities and property still strongly outperformed the local fixed-interest markets over the quarter, with gains of 9.6% and 6.3% respectively, against the 2.2% of bonds and 1.8% of cash. Due to the strength of the rand, local markets generally outperformed global markets, with even global equities - the best of the offshore assets with a 5.5% US dollar return from the MSCI World Index - being down 3.3% in rand terms.

We continue to see good returns on offer from just about all local fixed-interest assets, based on an increased risk premium applicable to South African investments. These prospective returns are higher than the long-term historical returns generated by local fixed -interest assets and we continue to hold a moderate position in local fixed-interest assets. Given that shorter-dated credit instruments offer returns that are similar to longer-dated government bonds, but with much lower volatility, we have deemed it prudent to divide exposure between these two investment options.

During the first half of the quarter, bond yields rose strongly and bonds became more During the first half of the quarter, bond yields rose strongly and bonds became more attractive, but still faced the risk that political developments could push yields even higher (and prices even lower). Over the period of the ANC elections we implemented a derivative structure to provide additional exposure, but with reduced downside to bonds, in case of a bond rally. When a strong rally did occur in the week after the ANC conference, we closed out the structure and locked in the gains, capturing the bulk of the positive move in the bond market.

A derating of local property over the last three years took place despite property's resilient growth in dividends, which has kept pace with inflation and was much stronger than dividend growth from equities. Furthermore, approximately 35% of JSE-listed property companies’ earnings are now from outside South Africa, with a skew towards euro exposure, a currency that still seems cheap against the rand on a purchasing power parity basis. Given the increased political uncertainty in SA during the previous quarter, listed property companies with a South African rental income stream became cheaply priced. The three largest and most liquid SA Reits (Growthpoint, Redefine and Hyprop), which derive 80% of their earnings from SA, offered an average dividend yield of about 8%. Even with very modest distribution growth - well below our assumption for long-term inflation - these counters were priced to deliver real returns in excess of what we require from SA listed property companies. We therefore built on our position in SA listed property by buying a blend of these three stocks.

We have added to our exposure to South African equities. Companies with a South African earnings base (i.e. financials and retailers), have rerated given the outcome of the ANC elective conference in mid-December. Naspers now makes up about 25% of the Swix Index. According to our analysis, Naspers was trading at 34% below its fair value at quarter end. If we exclude Naspers, then the forward P/E of the market is about 13.5 times. Based on this, the SA equity market is fairly priced in the context of globally repriced equity markets. This is supported by a bottom-up valuation of the Swix, where we aggregate the fair values of its constituents as calculated by the SIM analysts.

No discussion of equities for the past quarter would be complete without reference to the terrible loss experienced in Steinhoff. Although we had exposure to the share and hence suffered a loss of almost one percent of fund value as a consequence, this illustrated again the benefit of having a diversified portfolio to reduce the impact of such a negative event.

Risks

Global real yields have dropped substantially after the 2008 financial crisis. We remain unsure whether this is a temporary phenomenon, due to central bank policies of quantitative easing, or whether this is more permanent due to globalisation and demographic changes. Even if temporary, we can't predict the rate of normalisation.

Assets are currently priced as if real yields are going to remain low for a prolonged period and we can express a rationale for such based on global debt levels. On a relative basis, growth assets are priced to continue giving the type of outperformance (over fixed-interest assets) that they have historically given. The risk does lie in a more rapid normalisation of pricing levels (to historical average values) that would detract from growth assets' relative returns.

South African assets have rerated given the outcome of the ANC elective conference. To what extent the management of the country will improve given the change in leadership remains to be seen. A lot of good news has been priced in, even though the government’s financial position remains precarious.

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