Issue: June/August 09
Umbono Fund Managers

Add some alpha to your beta

Benefits: Active Management Benefits: Tracker Building Blocks
Scope for outperformance (Alpha):
MSI believes that active allocation decisions to particular asset classes (based on the prevailing outlook for each market) have the greatest potential to contribute to performance.
Exposure to market returns (Beta):
Tracking an appropriate market index gives diverse exposure to the respective asset class.
Sophisticated research and analysis:
The use of intellectual capital to inform the active asset allocation decisions is the key principle used in structuring this portfolio.
Low fees:
By reducing the costs associated with active stock selection (particularly intellectual capital), lower fees can be charged. A lower fee provides a guaranteed head-start in performance; for example, a 0,30% annual fee reduction on a 30-year investment may add more than 8% investment growth.
Flexibility: Active asset allocation offers the agility to avoid the pitfalls of rigid static asset allocation, thereby reducing risk. Greater certainty: The tracker approach provides a reliable result by minimising the risk of market underperformance that may arise from stock selection.

Craig Chambers

Craig Chambers
Deputy Managing Director of UMBONO Fund Managers

Collaboration is one of the many benefits in the multi-boutique structure of Old Mutual Investment Group SA (OMIGSA). This is apparent in the launch of a new fund which sees the seemingly contrary investment styles of Macro Strategy Investments’ (MSI) active asset allocation combine with the tracker approach of Umbono Fund Managers. The result is the Old Mutual Active Beta Global Balanced Fund.

It heralds a new age of investment choice for investors wanting consistency, cost efficiency and growth potential in a single package. Comprising a balanced mix of local and offshore equities, quoted property, bonds and money market instruments, the portfolio has a long-term real return target of CPI + 5% a year.

As a fully-diversified investment, compliant with Regulation 28, it could prove an attractive choice for pension funds, as well as members of individual-choice pension funds.

Numerous studies have demonstrated that asset allocation accounts for a significant proportion of investment returns. For one, an analysis by Ibbotson & Kaplan (Financial Analysts Journal, 2000) shows that asset allocation explains about 90% of the variability of a fund’s return over time.

The local selection of bond and equity index-tracker funds is managed by Umbono Fund Managers, with cash management in the hands of fixed-income specialists Futuregrowth (also in the OMIGSA stable).

In addition, the fund’s mandated allowance of a 20% offshore exposure is via Exchange Traded Funds (ETFs) based on international indices corresponding to the required portfolio allocations. The suite of global managers includes Barclays, State Street, Vanguard, Claymore and Invesco.

Benefits of combination

Active asset allocation offers access to extensive research and the skills required to take advantage of market opportunities, while avoiding underperformance as a result of over-exposure to negatively-performing asset classes and economies. In backtesting the fund, the actual asset allocation decisions made by the MSI team were applied to the representative indices for each asset class. The resulting outperformance – over a static asset allocation fund – averaged 1,1% a year.

Tracker investing provides the benefits of substantially lower fees and significantly reduced uncertainty around performance within each asset class, relative to the market. The blend of these seemingly opposed investment approaches has potential to deliver efficient market outperformance. In essence, the active management aspect provides potential for alpha over and above the beta provided by index-tracker funds.

To find out more about the Old Mutual Active Beta Global Balanced Fund contact Craig Chambers on 011 562 6039 or Also see &