FNB Defensive Fund of Funds review 2022

Published by
Lethabo Ntsoane

The FNB Defensive Fund of Funds is managed at the multi-manager level and is actively managed by two companies. The fund is relatively new when compared to unit trusts managed by investment managers such as Allan Gray. Since the defensive fund is still new, it hasn’t shown its full potential. 

So far, the fund has shown a maximum decrease of 18.88% in a year, which is the highest low and, at the same time, the benchmark that it follows was down by 9.79%. It has shown good times. It has had a 1 year high of 19.20% and has outperformed its benchmark high since its inception. 

The fund has shown volatility from 2020 to date and this can be attributed to a number of factors, one being the Covid-19 pandemic. Still, the fund has managed to post a 4.64% growth average since its inception. However, it was outperformed by its benchmark, which posted a 6.86% growth average for the same period. 

The fund has 23.98% equity investments. The investment in equities is below the threshold set by Regulation 28 of the Pension Funds Act 24 of 1956. Regulation 28 states that local and foreign equity investments should be limited to 75% of the fund’s investment portfolio.

The statement thus renders the fund regulation 28 friendly. This means that preservation funds, retirement annuities, living annuities, and other pension-related investments can invest in the fund. 

The FNB Defensive Fund of Funds provides a way to grow an investment through great investments that are diversified. The product has more to it than what meets the eye. To understand the fund, continue reading as we give a detailed analysis of the fund below. 

FNB Defensive Fund of Funds summary

The FNB defensive fund of funds follows a multi-manager investment strategy to achieve the objectives of the fund. The fund was launched on June 1, 2013, and has since set its benchmark as CPI + 2%. The FNB defensive fund of funds has not been able to match or outperform its set benchmark on many occasions. 

Since its inception, the fund has managed to average returns of 4.65% compared to the benchmark average of 6.86% during the same period. This is 2.21% less than the benchmark average. However, the fund only managed to outperform the set benchmark during its first year of existence. 

The fund invests in a number of assets,  and only local assets compose the assets that the fund invests in. The fund has its own strategic asset allocation. According to the fund’s strategic asset allocation, the fund is expected to invest in the following manner:

  • Local protected equity 41.70%,
  • Local bonds 33.30%, and
  • Local property 25%

The fund has invested differently when compared to its asset allocation strategy. As of 2022, the asset allocation of the fund is structured as follows:

  • Local fixed income investments, which amount to 40.51% of the fund;
  • Local protected equities investments, which amount to 23.98% of the fund;
  • Investment in local property, which accounts for 20.30% of the fund; and
  • Local cash investments amount to 15.21% of the fund.

To manage the investments in the fund, the fund makes use of two investment management firms. These include Ashburton Fund Managers – Active and Prescient Investment Management, and they manage 75.81% and 23.98% of the fund, respectively. 

How the FNB Defensive Fund of Funds works

The FNB defensive fund of funds is a multi-managed unit trust and targets to achieve moderate returns. The fund is paired with CPI + 2%, which is the benchmark that it tracks. Due to the benchmark, the fund invests in less volatile assets to achieve its objectives. 

The fund is Regulation 28 compliant, therefore, retirement investments are allowed to wholly invest in the fund. Retirement investment vehicles such as endowment funds, preservation funds, and retirement annuities can invest in the fund. 

Other investments also qualify to invest in the FNB defensive fund of funds and these include but are not limited to tax-free savings accounts, emergency savings, and ordinary investments. The fund is able to generate low returns while protecting the capital invested to a certain degree. 

The FNB defensive fund of funds comes with costs that are associated with investing and managing investments. This is because the fund is managed by third-party managers who have to be compensated for their expertise. Managers include Ashburton Fund Managers and Prescient Investment Management. 

The FNB defensive fund of funds is structured in the following manner:

  • The Annual Management Fee is billed at 1.44%.
  • Total Expense Ratio (costs associated with managing and operating the fund) billed at 1.74%, and
  • Transaction costs are billed at 0.04%.

Advantages of the FNB Defensive Fund of Funds

  • The fund invests in less volatile assets over the medium to long term, which protects the capital from medium-term defects.
  • The fund is Regulation 28 compliant, therefore, retirement investments can be made using the fund.
  • There is no minimum investment requirement, therefore, investments can be made depending on an individual’s budget.
  • The fund allows many types of investments into the fund.
  • The fund targets a moderate benchmark, which in turn allows the fund to invest in many secure assets.
  • Switching from the FNB defensive fund of funds to another fund is allowed.

Disadvantages of the FNB defensive fund of funds

  • The fund hasn’t been able to match or outperform its benchmark on most occasions.
  • The fees charged are high for a fund that has been underperforming for many years.
  • There are no capital guarantees when investing in the fund.

Conclusion

The FNB Defensive Fund of Funds is mainly for those who want to invest for the short to long term in a less volatile unit trust. The fund hasn’t been able to catch up with its set benchmark over the years, but sometimes does perform nearly at its set benchmark. However, the fees charged for the fund may be deemed high since the fund hasn’t yielded above-average returns since its inception. 

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Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted at lethabo@rateweb.co.za

Published by
Lethabo Ntsoane
Tags: FNB
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