Stanlib intent on restoring its reputation in the equities sphere
Manager at the helm will use what he calls real-world investing to get an edge over rivals
Are we ever going to see Stanlib become a serious competitor to the likes of Allan Gray, Coronation and Investec? When SCMB asset management merged with Liberty Asset Management in 2002 it was hoped that combining the strong marketing at SCMB and the investment performance at Liberty would lead to a highly competitive fund manager.
Mergers of big managers generally don’t work well — the merger of UAL and Syfrets to form NIB Asset Management being the most notorious. Investec’s merger with Fedsure AM worked as Investec boss Hendrik du Toit simply employed a couple of key people and left the corpse to rot.
Stanlib has some centres of excellence. It was the first large manager to spot the opportunity for listed property investment. And it remains the go-to manager on fixed income, through the — let’s be kind and call them seasoned — duo of Henk Viljoen and Ansie van Rensburg.
Some top managers such as Sidney Place, Errol Shear and Lo Giyose have left Stanlib. But one of the other more seasoned managers who is very much in the saddle is Herman van Velze. He has the tough task of restoring Stanlib’s reputation as an equity manager. It hasn’t been easy for anyone to do well in domestic equities, which have had annualised growth over the past 2.5 years of 2.3%. He won’t be trying to time the turning points in markets. Instead, he will aim to identify companies that can consistently differentiate themselves from their competitors. He calls it real world investing as it looks at the production process, product development and management style as well as financials.
One of his favourites is AVI, which dominates sectors such as biscuits, tea and low-end perfumes. Curro has been one of the JSE’s most successful shares as it has focused on private education at a price point below traditional private schools.
As a veteran mining analyst Van Velze is keen on a share at the other end of the market spectrum, the unloved Kumba Iron Ore. At heart, Kumba is a simple business, It is a vast open-pit mine stretching over 14km with at least a 19-year life span. He says it has used modern technology to improve iron ore extraction. Yet when it passed a dividend shareholders panicked, even though this had already been flagged.
Van Velze certainly can’t be put into any style box: AVI is quality, Curro aggressively momentum and Kumba deep value. But such an approach is appropriate for the broader investor who is looking for diversified exposure to the JSE.
There is a perception that at Stanlib, as a member of a large conglomerate (ultimately the Standard Bank Group), staff can relax and have job security. But the group is already building up its index-based capability. It is bound to put pressure on Stanlib’s active equity business if it cannot start to produce more consistent outperformance. There will be alternative revenue sources such as absolute return and infrastructure, but equity performance will always be the calling card.
It is hard to know how fund managers would outperform a portfolio run by a computer. Is there a Gary Kasparov out there willing to try?
Computers aren’t an issue so much in the lives of index funds. Any of us could write out the list of the top 40 and their weightings with a felt-tip pen.
But quantitative funds can burn far more computer power than their index cousins. And they are used most extensively in macro hedge funds, which scout for opportunities across asset classes and markets.
According to the Financial Times, while active equity hedge funds have gained 7.7%, quant equity funds are a way behind at 4.9% and macro funds are down 1.4%, showing that computers can also get it wrong. All this at a time when quant hedge funds have doubled over a decade to $500bn under management. The Financial Times talks lyrically of funds “basking in the ravenous appetite for nearly all algorithmic strategies”.
Neal Berger, a fund manager from Eagle’s View Capital, which blends hedge fund strategies into a fund of funds, says the fantastic returns of many quant managers have attracted too much money.
Decent returns have been crowded out as too many investors pursue them. He says robots can’t win so easily if they are trading against other robots.
The counter view is that the underperformance has been too short, at about eight months, and they are still within the normal distribution of returns — hardly a double or triple Sigma event, as fund managers like to say.
But like many other asset management terms such as “value” and “fundamental”, “quant” is not specific. It runs the range of complex algorithms to spreadsheet tweaker to supercomputers.
One of the strongest quant houses, Renaissance Technologies, founded by multibillionaire James Simons, has earned its premium rating with a commendable 10% return — although its built-in bias to rising equities helped.
But more propeller-head strategies that remain a mystery to most investors, such as statistical arbitrage, have done poorly. It is interesting when fund managers choose names that prove to be self-fulfilling, such as BlueTrend, run by a crowd called Systematica (what could go wrong?). It was down 6.4%, giving all investors the blues.
A paper by academics Jeffrey Pontiff and David McLean that looked at 96 different investment factors observed that the opportunity to beat the market, known as alpha, fell on average by 50% once there was a signal that made the opportunity widely known. They call it alpha decay. I’m sure I’ve heard about that in toothpaste commercials.
THERE WILL BE ALTERNATIVE REVENUE SOURCES SUCH AS ABSOLUTE RETURN ... BUT EQUITY PERFORMANCE WILL ALWAYS BE THE CALLING CARD