Discovery Balanced Fund consistently outperforms


Just 10 years after Discovery launched its asset management arm, Discovery Invest, with an initial capital outlay of R50 million, the division is proving another success for the company.

Discovery Invest was ranked in the PlexusCrown Survey as the fourth best collective investment scheme management company in South Africa, as of the end of December 2017. (URL: resources/investments/plexcrownsurvey-q4.pdf).

For the six months ended 31 December 2017, Discovery Invest’s operating profit grew 29% to R419 million, driven by growth in assets under administration of 22% to R77.8 billion, with 77% of linked funds in Discovery funds.

The Discovery Balanced Fund has remained in the top 10 retail flow, taking SA unit trusts in each quarter for the past two years.

Read more: Discovery to enter banking sector

Top quartile performance

The Discovery Balanced Fund has enjoyed top quartile performance over one, three, five, seven and 10 years to the end of March 2018.

• Ten years: 10% (benchmark: 8.07%)
• Five years: 9.8% (benchmark: 7.48%)
• Three years: 4.5% (benchmark: 3.18%)
• One year: 6.3% (benchmark: 3.34%)

The benchmark for this fund is the peer group average.
Source: Profile Data as at 31 March 2018.

Outsourced partner

Right at the beginning of our journey, we identified Investec Asset Management as a leader in the asset management industry. That is why, in 2007, we chose to partner with Investec and outsource the day-to-day management of our funds to their leading team of fund managers.

The Balanced Fund investment team is led by fund manager Chris Freund, who has more than two decades of experience in investment management. Additionally, the team of 24 investment professionals who work with him on this fund boast a collective 419 years’ experience in the asset management industry.

Investment philosophy

Within the Discovery Balanced Fund range, we look for shares that are reasonably priced, with expectations of positive, sustainable earnings growth. The share selection considers macroeconomic conditions and whether there will be broader acceptance of the investment opportunity from investors.

The core principles of our investment philosophy include: delivering real returns over time; and investing in companies where expected future profits are being revised upwards due to them trading at reasonable valuations. A global perspective is critical in understanding the economic cycle which drives the asset allocation process for these funds. Three questions dictate the investment criteria for both balanced funds and target date retirement funds:

Valuation: What price are we paying for the investment opportunity?
Fundamentals: Are their earnings, income or economics improving?
Investor behaviour: Will capital follow our investment thesis?

Can the positive trend in global growth continue and should this continue to provide support to equity markets around the world?

We remain positive on the outlook for global growth and saw the recent spike in equity volatility as a healthy correction from overbought levels. We have used this period to increase our exposure to equities. Within equities, we have exposure to domestic listed counters which will continue to benefit from the improving global environment (Mondi, Naspers, Richemont and specific resources such as Anglo American) where earnings are receiving positive revisions. At present, we believe it is important to monitor any signs of escalating uncertainties around the so-called ‘trade wars’ between the world’s two largest economies.

Can the positive improvement towards SA continue?

We are very pleased with the changes seen on the domestic political front, which we believe should be positive for future growth expectations. We retain a fairly healthy allocation to so-called ‘SA Inc.’ assets – such as domestic bonds and specific equity counters where earning expectations continue to improve against a more optimistic domestic backdrop.

Some of our key holdings include Standard Bank, Mr Price and Foschini.

Nothing contained herein should be construed as financial advice and is meant for information purposes only. Discovery Life Investment Services Pty (Ltd): Registration number 2007/005969/07, branded as Discovery Invest, is an authorised financial services provider.