A Letter to Investors
Dear Investor
Thank you for putting your trust in us and allowing Steer Capital to manage your investment. We regard investors in our funds as partners in our business and with this letter it is our intention to explain what you can expect from your investment under our management. We aspire to attract investors who understand our process and trust us enough to manage their capital through different cycles for the long term. We have seen over the years that investors who have not just invested their capital but also invested themselves into understanding the investment process initially, are better equipped to emotionally deal with periods of outperformance and underperformance based on the solid foundation of understanding the principles we use to manage capital. I would like to emphasise three important factors that we think all our investors should take note of before engaging in the process of investing with us. These factors are our mindset towards risk, the investment management mandate, and the benchmark.
Related introduction articles
Effective Portfolios are well balanced
Mindset towards risk
The first point to make is that any return above the risk-free rate (cash) can only be achieved through active allocation to assets, such as equities, that carries risk. This reality needs to be accepted and embraced. It is our role to manage such risk to an acceptable level within our portfolios to deliver on the stated return and risk objectives.
Expectation management
Short term underperformance in this process is normal and even to be expected at times. It is however our objective to deliver above benchmark returns as consistently as possible. Nobody has control over when assets will produce returns. We have only control over the decision in which assets to invest in and how much to be invested in each asset. It is like sowing on good soil and waiting for the season to change to deliver a harvest.
Related articles
Value of balance within a portfolio
The table below shows that long term outperformance goes hand in hand with periods of underperformance. Periods of underperformance is not to be feared and rather to be embraced as long-term outperformance does not come in a straight line. Underperformance is normally a result of seed sown on good soil and waiting for the season to change to deliver a harvest.
| Measure | Reading |
| % 12 months outperforming benchmark | 55% |
| % 12 months outperforming cash | 57% |
| Ave 12-month return | 9.50% |
| Ave 12-month return (benchmark) | 9.00% |
| Ave 12-month return (Money Market) | 7.50% |
Mandate
It is important that you understand what your investment is invested in. The fund actively invests in equities, commodities (precious metals), bonds, and money market instruments. The fund also invests offshore in all the mentioned asset classes and can invest up to 45% offshore. The fund may not invest more than 40% in equities in South Africa and offshore combined. The mandate is focused on balance between asset classes and strategies. The blend between asset classes and strategies is intended to reduce market risk and optimise the relationship between risk and return above the benchmark.
Related article
Benchmark
Now that you know what the fund is invested in, it is time to familiarise yourself with the fund’s benchmark. The fund is compared to a composite benchmark which is the very assets that it is allowed to invest in and not the industry average. The fund’s benchmark is comprised of assets that are investable and makes it therefore the most relevant benchmark. The benchmark of the fund is: 30% bonds, 22,50% cash, 20% South African equities, 20% offshore equities and 7,5% property.
Do not make the error of comparing the fund to any one asset class as that will not be a fair assessment of the Fund’s performance and will not serve you as the investor with the perspective that you need. For example, comparing the fund to an equity index like the JSE Top 40 will not be helpful as the fund may only invest 40% in equities. The same principle applies for comparing the fund with a money market fund. Always compare apples with apples, otherwise it is a fruitless exercise. The fund has a relevant and investable benchmark, to assist you to fairly judge performance and risk of the fund.
Related article
Closing
My hope is that the above information and linked articles will give you the needed perspective on what to expect from your investment journey with Steer Capital. Please let us know if you have more questions.
Kind regards
Dennis du Plessis
September 2022