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May 22, 2024
PI Global Investments
Alternative Investments

De-linking your portfolio from the stock market

The de-listing trend on the JSE has reduced the universe of assets available to investors, but those assets are still out there and, in many cases, offering attractive above-average returns.

These form part of the growing class of ‘alternative’ investments that offer refuge from stock market cycles. Think of solar energy and niche agricultural products and inflation-beating fixed interest-bearing products that are not prone to macro-economic trends and interest rate cycles.

This is where investment company Fedgroup has focused its expertise.

“We specialise in alternative investments, which is everything else not included under traditional investments such as equities and bonds,” says Michael Field, general manager of investments at Fedgroup.

“The two best examples of this alternative approach are in the agri and green energy spaces, where we have built up a formidable in-house capability.”

Solar energy makes perfect sense since this is a natural growth market with steady returns, born out of SA’s flaky power grid.

Field says the group whittles down the shortlist of potential investments by focusing on well secured and maintained commercial solar operations, and even then only one in 15 is considered investable. To be included on the Fedgroup shortlist, there must be tangible assets that can be recovered in the event of business failure.

Another exciting alternative investment avenue is in the agricultural sector.

Fedgroup avoids cash crops such as wheat and maize where prices are prone to deep fluctuation, focusing instead on more manageable higher-margin crops such as nuts, berries, citrus and honey.

“Food and energy are resilient markets, which is why we prefer them,” says Field. “Our investment approach is to avoid volatility and market sentiment. We are looking to counter the weaknesses of traditional markets, such as volatility. We look for a mix of income streams that are both onshore and offshore, which is a form of natural hedging.

“Stock prices are to a large extent driven by what the Federal Reserve or SA Reserve Bank is doing. We want to move away from that and look at the key drivers in a business.

“What is commonly referred to as ‘macro effects’ are actually sentiment. For example, people say the rand should be in the R15-16 range against the US dollar, but it isn’t. It is ranging between R18 and R19.50, and that’s because of sentiment. We look for ways to strip out a lot of this noise and look at actual fundamentals.”

Specialising in these areas is also a form of differentiation from others operating in the investment space, and the expertise built up over the decades is not easily replicated by others.

Nor is Fedgroup a passive investor in these markets. For example, one of its group companies, Techsitter, specialises in the internet-of-things, allowing it to monitor virtually anything in real time.

This in-house capability has been applied to most of its businesses, which means it has a live, real-time view of each solar panel and whether dust accumulation has impacted power generation, or farm water usage. This means problems can be picked up in minutes rather than weeks or months later – a crucial competitive advantage.

These investments are grouped as follows:

  • Impact Farming, allowing retail investors to gain exposure to sustainable assets through the Fedgroup App for a minimum investment of just R100.
  • Two specialised endowment portfolios, the Impact Portfolio and Diversified Alternatives, housing these alternative assets in a regulated endowment structure. The minimum investment amount is R100 000 for a five-year term, or a minimum of R3 000 per month.
  • A fixed endowment, also housing these alternative assets, but offering a fixed annual rate of return. The minimum investment amount is R100 000 for a five-year term.

The fees are a competitive 0.78% a year on endowment products, with no hidden fees as is found in some less transparent funds and offers distinct tax benefits.

The Impact Portfolio is invested in five sub-funds: the Smart Agri Fund (45%), the Green Energy Fund (30%), the Enhanced Property Finance Fund (10%), the Private Capital Fund (10%) and Enhanced Cash Fund (5%).

The performance net of fees came in at 12.32% over one year and 10.49% over three years, handsomely beating the benchmark return over these periods.

This is also considerably better than the JSE All Share index, which is down 1% over the last 12 months.

The Fedgroup Diversified Alternatives Portfolio is invested in the same five funds as above, with allocations of 19% to each fund, except for cash, which is 5%. The performance net of fees came in at 11.7% over one year and 10.42% over three years – again, substantially better than the benchmark.

The Fixed Endowment offers a five-year forward-looking net effective yield of 7.5% (i.e. after fees and taxes), above the consumer inflation rate of 5-6%.

Brought to you by Fedgroup.

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