The PPS Medium Equity Portfolio is a unit trust that strategically invests in a diversified mix of assets to achieve its fund objectives. The fund operates within specific investment restrictions that govern its allocation. According to its mandate, the fund is allowed a maximum of 30% offshore investment, 60% in equity, and 25% in real estate.
Due to these investment constraints, the PPS Medium Equity Portfolio is particularly suitable for retirement investments. Investors can access the fund through retirement annuities, preservation funds, pension funds, and provident funds.
The fund carries a moderate level of risk and is designed for a 5-year investment horizon. Therefore, it is most appropriate for individuals seeking medium to long-term investments to preserve their capital and earn interest on their investment.
While the fund does not match the high performance of equity-only funds, it has the potential to generate positive returns within its investment horizon. While it may not consistently achieve an average return of +10% per year, a return of +5% is feasible due to the nature of its asset allocation.
Over the long term, the fund aims to deliver total returns that are 4% higher than the inflation rate. It intends to achieve this by adjusting its exposure to income-producing assets and capital growth in the short term.
The fund has experienced both good and challenging periods in its investment journey, but the majority of its performance has been positive. To gain a better understanding of the fund’s performance, let’s explore its historical yields and annual performance.
The PPS Medium Equity Portfolio presents an excellent investment opportunity with an ambitious benchmark of inflation plus 4%, given its size. Since its inception, the fund has achieved an average annual growth rate of 8.21%.
The fund promises positive returns over 7 years. To assess its performance, we will review its performance from 2017 to 2021.
In 2017, the fund experienced an increase of 8.86%. However, during the same period, the benchmark recorded a higher increase of 9.19%. Therefore, the fund underperformed compared to the benchmark.
In 2018, the fund had a modest growth rate of 0.78%, while the benchmark achieved an 8.52% increase. This particular year marked the lowest performance for the fund within the reported 5-year period, highlighting the fund’s tendency to perform better over a longer investment duration.
The fund rebounded in 2019 with a notable growth rate of 10.01%. This represented a substantial increase of 9.72% compared to the previous year. Moreover, the fund outperformed the benchmark, which recorded an 8.13% increase during the same year.
Despite the challenges faced in 2020, with South Africa experiencing a lockdown, the fund still achieved a moderate growth rate of 6.69%. However, the benchmark outperformed the fund with a 7.21% increase.
The fund’s best year within the five-year period was 2021, demonstrating a remarkable growth rate of 16.52%. This increase was 9.83% higher than the previous year. The fund outperformed the benchmark, which recorded an 8.61% increase in 2021.
Overall, the fund outperformed the benchmark over the five-year period analyzed. The fund delivered average annual returns of 8.35%, while the benchmark produced returns of 8.33%. The fund maintained a slight 0.02% advantage.
Given the fund’s performance history, it is now beneficial to examine its asset composition to gain further insights into its investment strategy. We will delve into the specific assets in which the fund invests below.
The asset allocation of the PPS Medium Equity Portfolio comprises a diversified mix of assets, with equities representing the majority. Domestic equities make up 35.46% of the fund’s assets, while global equities account for 18.98%, resulting in a total equity allocation of 54.44% for the portfolio.
The PPS Medium Equity Portfolio also has a significant investment in bonds, which serves to mitigate risk. Local bonds contribute substantially to the portfolio, representing 25.81% of the total.
Cash holdings make up 29.11% of the fund, with South African cash constituting 25.81% and Global Cash comprising 3.30%.
To provide further insight into the fund’s investment approach, here are the top 10 holdings:
The PPS Medium Equity Portfolio delivers high returns on investment while also safeguarding a portion of the capital through investments in secure assets such as bonds. The fund is a suitable choice for individuals seeking long-term wealth accumulation without the need for active investment management, as professional asset managers oversee the direction of the invested capital.
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