Identification and monitoring of risk in portfolio management

Blue Chip in conversation with Zisanda Gila from Momentum Investments.

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Zisanda Gila

Zisanda, you are lead portfolio manager at Momentum Investments. Please share with our readers your journey that led you to this point of your career.

I have been in the investment profession in different capacities for over 15 years and my portfolio of responsibilities gradually evolved over the years. My journey in the investment arena began when I joined Metropolitan Asset Managers as a fixed-income dealer, and I later moved to a money market analyst and co-portfolio manager role working under supervision. In 2015, I started in my current role as lead portfolio manager at Momentum Investments, managing over R40-billion of assets across various money market strategies within the fixed-income team.

From joining the financial services industry more than a decade ago, I have found my career to be a fulfilling and meaningful one. Coming from a family where perfectionism was encouraged, and given my strong mathematical background, academically my career was on course.

However, the actual journey did not come without its difficulties. Having someone in your corner and having the right determination and the drive to succeed boosts your chances of success in the industry. I have found mentorship to be very pivotal to my career navigation. It has made me aware of my strengths and developmental areas and encouraged me to take opportunities that come my way.

Please tell us about the funds that you manage.

Our money market funds range from low-risk cash funds to enhanced yield strategies. All our funds aim to provide liquidity, inflation protection and enhanced cash returns superior to banks’ overnight deposit rates. We offer these solutions in segregated portfolios, collective investments and pooled funds across our assets under management.

What is the strategy for these funds?

Our outcome-based investing approach helps in solving for appropriate investment outcomes and helps our clients understand and articulate their needs and return expectations. We construct our portfolios to align with regulatory requirements in the clients’ respective industries of operation and ensure the clients’ objectives are achieved by first formulating interest rates views and aligning investments with clients’ risk appetite and tolerance. We consider management of risk to be a fundamental aspect of portfolio management. As a result, significant emphasis is placed, within our investment process, on the identification and monitoring of risk.

“We consider management of risk to be a fundamental aspect of portfolio management.”

Fundamental credit research and analysis plays a defining role in our asset selection and asset allocation decisions. This is key and supported by our research to seek risk-adjusted returns from the various curves and assets. Since credit risks can have many layers, diversification is a continually moving target.

I believe diversification of strategies leads to more consistent returns over time. We therefore buy a variety of asset classes from various curves that meet our valuation and risk hurdles. This is the classical theory of not placing all your eggs in one basket in practice.

Please outline their performance.

The performance of the portfolios is measured against the STeFI benchmark, with an outperformance objective of up to 1.50% above the benchmark. We strive to attain the highest possible return on investment for our clients for a given (usually low) level of risk, consistently over a long period.

A highlight was the Momentum Enhanced Yield Fund winning the Raging Bull Awards in 2019 and 2020, as the “Best South African interest-bearing short-term fund on a risk-adjusted basis” over five-year periods. This achievement has motivated and brought the team together in pursuing a common purpose of delivering superior returns.

How has Covid-19 affected your portfolio of funds?

At the heart of our fixed-income strategies is daily liquidity management. During the Covid-related sell-off in global financial markets in March, our portfolios were not spared of the outflows from underlying investors. There was a brief period in April when the banks had excess liquidity, and we were able to sell back our bank paper holdings to raise cash for these liquidity requirements. There was also notable portfolio de-risking and asset class switches, which resulted in cash neutral positions.

What is the outlook of the funds?

The funds’ strategy has been to invest in fixed-rate notes as the interest rates continued to fall and the curve flattened. We continued to increase duration as the market goes through periods of risk-off. We remain cautious of credit quality but are finding more attractively priced opportunities as spreads widen to our fair value levels. We maintain hurdle rates in the different funds through a combination of fixed and floating when valuation supports our investment decision.