In an article published by Citywire on 9 January 2023, Citadel’s H4 Diversified Fund was ranked as a top fund in South Africa. In the piece, the publication revealed the results of a study which compared fund data from 164 funds in 2018 and 207 funds in 2022 in the ASISA South Africa Multi-Asset High Equity Fund category. The study found that only six funds, managed by five managers, in this ASISA category achieved positive returns in all five calendar years since 2018 across a range of market conditions. One of those funds was Citadel’s H4 Diversified Fund, managed by Yolanda Naudé.

Yolanda says, “We are delighted with Citywire’s recognition of the fund’s consistent returns over the past five years, and we will endeavor to repeat this good performance going forward.”

What is the H4 Diversified Fund about and how does it keep delivering over time? Yolanda Naudé talks us through the fund and what makes it special.

H4 DIVERSIFIED FUND

The H4 Diversified Fund forms part of Citadel’s real return solutions. It’s primary function is as an in-fund solution for clients who are looking for growth in their portfolios, but are constrained by Regulation 28 rules of the Pension Funds Act, which stipulate the maximum equity exposure and offshore exposure, 75% and 45% respectively, an investor can hold in a pension fund. The H4 Diversified Fund is, however, also available as a stand-alone fund.

The fund consists of a diversified mix of asset classes (for example: equity, government bonds, cash, listed property, etc.). Active asset allocation is the main driver of returns over time in this fund. At Citadel, asset allocation is a deep and extensive investment discipline and a key part of our investment decision making process and ultimately our investment results. The Citadel Asset Management (CAM) team undertakes a large amount of original research on the macro-economic outlook and asset class valuations. Our process blends the characteristics of various asset classes to deliver a fund with the highest expected return, for a given risk level, over a specific time horizon. In addition, in terms of implementation of our investment views, considerable money management expertise exists within the CAM team across all major asset classes, including local and international equities, local and international bonds, listed property and cash.

The H4 Diversified Fund’s investment universe is primarily comprised of listed equity securities, fixed interest securities, listed real estate and assets in liquid form. The fund is allowed to invest in listed and unlisted financial instruments for the purpose of efficient portfolio management only. The fund is broadly diversified across asset classes and, as noted above, is managed in accordance with prudential guidelines governing pension funds – that means it is Regulation 28 compliant.

The Fund is benchmarked against SA consumer inflation plus 4% per annum. It is a moderate risk multi-asset fund, with the primary objective of achieving capital appreciation over the medium term at a risk level of roughly half that of a pure equity investment, and offers moderate capital stability.

In addition to active asset allocation, the H4 Diversified Fund also benefits from Citadel’s active currency management processes where we continually look to reduce the negative impact of potential rand strength on the fund’s offshore assets. The fund also invests in Citadel’s in-house managed volatility equity funds which benefit from volatility in equity markets, both locally and internationally.

To keep costs as low as possible for investors, we use a combination of active and passively managed investment vehicles to represent the different asset class exposures in the H4 Diversified Fund.