Speaker 0:
with advisors and investors facing a bewildering choice from over 1200 investment funds, we ask South Africa's top fund allocators to share their top tips and ideas to find the winners. Welcome to investment.

Speaker 1:
Hello and welcome to the investment den. I'm joined today by John Haslett, chief operations officer and portfolio manager at Graphite Asset Advisory. Welcome, John.

Speaker 1:
Thanks, Chloe. Thanks for having me. So, John, the previous two funds that you highlighted, namely, the rubrics enhanced deal, uh, usage fund as well as the iShares Russell 2000 ETF. How have they performed for you? And have they fulfilled the role that they were initially selected?

Speaker 1:
Thanks, Chloe. Um, yeah, I think for the most part, they certainly have. I think first and foremost, it's important to point out that both of these investments are more longer term investment places. So, you know, we still hold an investment in both of them. Um, I'm happy to say that they're both positive. Uh, since we last spoke, uh, with one more than the other. And we can chat a bit about that first. So the iShares Russell 2000, it's up around 13%. As as we speak.

Speaker 1:
Uh, the majority of that performance has certainly come in the last I'd say two months. So we're seeing some of that broadening in in the market performance you've seen. You know, obviously, as you're well aware, the majority of the S and P 500 performance has been driven by, you know, the magnificent seven. So those large tech companies, but we're seeing some of that really start to philtre through into the smaller midcaps and, you know, some of the value players as well. Um, and we we

Speaker 1:
expect that is likely gonna continue. We still think very attractive from a valuation perspective. You know, the Russell 2000 is still trading at historic lows versus your large caps. I think the last time I was at these levels was back in, you know, the early two thousands. So, um, we still think it's attractive. And we've maintained that, uh uh, position, it could be some indigestion. I think short term

Speaker 1:
equity markets have run quite hard. And if you see weakness in the S and P, I don't think you can say that the rest of the market isn't gonna suffer, but we just think from a fundamental perspective. And, you know, it still is a diversify. It makes a lot of sense. So, you know, that position has been maintained. Um, then Rubik's and, um, we definitely, you know, this is where we're building our fixed income exposure. Um, it is an active, you know, fixed income manager. And that's I think, the part that we like the most. We're in a situation right now where,

Speaker 1:
um you know, the fixed income space is very attractive, but I think it's gonna be a bit more choppy going forward, You know, you want to be able to have a manager that can move between different parts of the fixed income market. Um, you know, be it sovereign bonds, Um, credit, uh, Treasury, inflation protected securities. And you know, we've been doing this a long time in terms of multi asset allocation offshore. When when you're looking for a you know, fixed income box, it can be quite challenging, because if you let's just take the last largest fixed income manager out there, P PM.

Speaker 1:
Um, you know, if you go and you know, look at one of their products, it will generally be focused on one part of the fixed income market. So the global bond is generally focused on developed market sovereign bonds. You know, you don't get any access to credit or merging markets or tips, and you gotta go and buy another whole separate fund for that. And, uh, what's quite nice with Rubik is they play that that entire space, they've, um They've very underweight credit, Um, right now, because they're concerned about it. But they're picking up the opportunity set that's been presented by that massive bond selloff that we had last year. And

Speaker 1:
it sort of forms part of my sort of suggestions for the two investments, Uh, today as well. Um, but I think if you're looking for the, uh, as I said to reiterate, it's important if you look at the fixed income space, I think at this juncture to include, um, you know, an active manager, uh, within that with that in that space. So, John, now focusing on the two new funds that you've selected, um, perhaps you can take us through the iShares 20 plus year Treasury bond ETF. And what's the role that this fund plays in in your solutions?

Speaker 1:
Um, Chloe. So the TLT is really for us as a more of a you know, short term player, I would say, uh, more of a tactical versus, you know, my first two suggestions from the last time we spoke. This is definitely more short term orientated. It really is. We're looking at it more as a diversify within the portfolio. Once again, Bonds came under massive pressure last year with, you know, alongside with equities. Um, but we think going forward, we saw a little bit of this dynamic play out, Uh, at the beginning of this year with the regional banking crisis,

Speaker 1:
you know, Bonds were actually positive when equities, uh, sold off. And that was just an indication of, you know, the market saying, Listen, you know, the Fed is going too hard and too fast here and, you know, is is really pushing the economy into a recession. And you know, in that case, you know, your longer duration bonds, you know, look very attractive. And we think TLT has the ability to sort of capture some of that up upside potential in the instance of a recession. We think downside is is pretty limited from this from this point. Given that,

Speaker 1:
um, you know, we're likely reaching the end of the hiking cycle and maybe one or two still to come. But, you know, you are getting paid, you know, a relatively, you know, good yield. I wouldn't say you're buying it purely for the yield, because, you know, you're sitting at just under 4% on the 10 year and something similar on the longer duration 30 year bonds. But,

Speaker 1:
you know, we think there's a as an overall diversify if the Fed pushes far too hard and raises rates too quickly. Um, you know things. More things jump out of the woodwork. You know, outside of the bank, regional banking crisis. Who knows? Credit blows up.

Speaker 1:
Um, you know, you see an increase in bank delinquencies. The curve is still very inverted. Um, so you know that we feel that it can act as a as a good diversify and what we've actually been doing is is rotating and taking profits in some of our, you know, growth positions. We've been pretty bullish on on equities this year, and that is paid out quite nicely. So we're rotating some of that exposure now into

Speaker 1:
bonds because what you're seeing, actually, and something interesting is Last year, bonds and equity sold off, and there was a high correlation between NASDAQ and growth stocks and, you know, longer duration bonds. That dynamic is broken down this year. Um, and what you've seen is the NASDAQ continue to climb higher despite real yields and nominal yields going up. And we think that gap is likely gonna close, and you're gonna have a period of probably of some indigestion, and we want to try and capitalise on that. And that's why we think you know that is one way of doing that,

Speaker 1:
John. So the second, um, fund that you put forward, I wouldn't say it's a fund. More structured notes, um, on the Nikai Uh, 225 index. Perhaps you can take us through, um, the structured notes and how you would implement the use of this notes into your solutions

Speaker 1:
shortly. So this, I would say in structure notes in general, are more, um, it's looked at as a more nuanced play within, you know, our overall portfolio. Um, we certainly don't look, you won't see a portfolio that we look after. That's, you know, gonna have 40% to structured notes. We've got a lot of experience on the offshore side, and we tend to look across the asset class spectrum and that. So we're not afraid to, you know, to potentially look into the value adds of, of, of doing

Speaker 1:
opportunities and structured notes really just fit within that. But we obviously have parameters in place, and one of them is the limit in terms of the overall amount of exposure that we can have. And it's limited, as I said, to 10%. Uh, we will also diversify the counter parties within these structured notes. But really, what they do do is they have. They provide the ability to access specific

Speaker 1:
Um uh, you know, tactical plays within particular jurisdictions or styles in this instance of the Japanese market. We want to try and take a, you know, AAA sort of a slight overweight there, but we want to have some protection. It's run very hard. It's done very well, but we think there's more upside potential there. So what we'll do is we'll make use of a structured note because it can provide the downside protection. So in this instance, you've got 30% downside protection. So if at the end of the maturity of the note, the market is down, let's say 20% you will still get all your money back

Speaker 1:
and provided. Obviously, the the counter party can meet its obligations. Um, but you'll get all your money back then. Of course, on the upside, which is great, is you get a geared or leverage upside that is capped at 60%. But we think within a two year period, 60% is still a very decent return. Um, so to sort of explain the the basics of it is, if you get to the end of the two year period and the the the N A is up 10% you will get 20% back.

Speaker 1:
Um, and if it's down 10% you'll still get all your your your cash back. If it's down more than 30 then it obviously gets triggered. But, you know, you would have suffered the same losses if you invested directly and then K 225.

Speaker 1:
So you know, we just think it's a very nice, nuanced way of accessing a particular jurisdiction that's gonna offer, uh, that it's, you know, for various reasons is looking attractive, and and and I can speak a bit about that. You know, we like the fact that there's still accommodative monetary policy within Japan on a valuation perspective. Even after the recent run, it's still very attractive. It's still trading below. It's all time highs from the late eighties early nineties, Um,

Speaker 1:
the the yen has weakened significantly. That's obviously very beneficial for the export portion of the market, which is, you know, key portion or large chunk of the actual Nike itself. So, you know, for all those various reasons we think that it makes sense. Warren Buffett is even, you know, a big fan of it. You would have seen he made a trip there recently. Bertha Hathaway has obviously been buying into it and seeing the value there as well. But again, you know, we just think it has grown very hard. And this is the reason why we prefer to structure that kind of, um, a more tactical play within something like a a structured note,

Speaker 1:
John, thank you very much for taking us through your two top fun picks.

Speaker 1:
You're welcome. Anytime. Thanks, Clay.