Often overlooked PSG Balanced leads the pack with 11.8% growth
Over three years the best performer is not from the first team, or even from the first reserves
You will sometimes hear that measuring investment performance is a meaningless activity. It is true that those of us outside the asset management fraternity recognise there is a lot of luck in these returns.
The industry only started to accept this after the publication of Nassim Taleb’s Fooled by
Randomness in 2001. But only people who do not need their pension fund pots to live on would consider monitoring returns as futile.
As a fund trustee, my members don’t want to hear about Sharpe ratios or the exposure to momentum shares, but how much cash is in their “account”.
So as many of us prepare for our last trustee meeting of the year, it is a useful time to reflect on whether the fund managers we have hired have done a good job. Like many funds, ours is invested in a default combination of the three most popular independent fund managers, Coronation, Allan Gray and Investec the CIA.
Most consultants are reluctant to move from these managers, at least when it comes to balanced mandates. Larger funds have the luxury of being split into specialist mandates, which would leave some gaps for BEE managers and other boutiques. Consultants such as Willis Towers Watson and Alexander Forbes have also been reluctant to support businesses aligned to life offices such as Old Mutual Investment Group, Sanlam Investment Management and Stanlib.
Has the strategy been successful? Returns over three years indicate a fund manager’s returns over a range of market conditions, and that timeframe is also helpful because it is far more likely that the same investment team would have been in place than over, say, 10 years. Yet over three years the best performer is not one of the CIA, nor the first reserves, Foord and Prudential, but PSG Balanced, with 11.8% a year. PSG operates mainly in the retail market and is largely ignored by the consultants.
So where do the CIA stack up in the Alexander Forbes Balanced Manager Watch? Allan Gray has had a strong three years, coming second to PSG with a 10.2% return, but Investec and Coronation were in the middle of the pack with about 7.6%. But this is the performance of Chris Freund’s non-quality team. If you want the quality team run by Clyde Rossouw, that is in the Dynamic category and has achieved about a percentage point more per annum.
A reliable one-stop option is still the Alexander Forbes (ex Investment Solutions) Performer fund, which invests with the CIA managers plus a few bells and whistles. It has given an 8.7% return and is certainly preferable to putting all your eggs with one manager.
There is only one blackowned manager in the Global Manager Watch Best Investment View, and that is Oasis, which likes to be seen as vanilla rather than BEE. But it is not a good communicator, which is tricky when its balanced fund is firmly in the bottom quartile.
There is a lot more choice in the Equity Manager Watch, as this is where the BEE managers are best represented.
Firms such as Aeon, Afena, All Weather, Argon, Benguela, Kagiso, Mergence, Mianzo , Sentio and Vunani all qualify in the benchmark cognisant or constrained category.
A more limited number choose to compete in the more free wheeling non benchmark co gin is ant category: Afena, First Avenue, Kagiso, Mazi, Oasis and Perpetua.
Of all the BEE managers Afena has produced the best returns in both the constrained and unconstrained categories, with 7.2%.
Afena started as a breakaway from Investec with high-profile founders such as Nothando Ndebele and Khaya Gobodo, but the original team has moved on. The main equity managers there now are both Sanlam graduates, Mila Mafanya and Shoaib Vayej.
Of the CIA managers, only Investec stands out in pure equity, (11% a year over three years) but through its Investec Value product, not its mainstream non-quality product.
Other strong performers have been minnows. Element, run by deep-value zealot Terence Craig, achieved a 10.3% return; Fairtree, run by Stephen Brown, a more nuanced value manager, achieved 11.5%.
One swallow doesn’t make a summer is the crux of the consultants’ argument about hiring new talent.
Who wasn’t cheering on Rezco Asset Management when Rob Spanjaard made the transition from chicken farming though you could say the two industries have a lot in common. Now Rezco Value Trend sits squarely at the bottom of the Forbes balanced fund table though, to be fair, it has done a lot better in the short term.
There also needs to be continuity in the investment team and some stability in the shareholding. Cadiz Global Balanced had a better return than Coronation and the Investec non-quality team, but who will put money with it now that it has been acquired by the colourful Ian Kilbride at Warwick, who has never had much interest in the institutional market?
Would anybody choose a well-known swashbuckler such as Kilbride when you can opt for the dependability of Prudential? The Pru can’t compete with the Hollywood-meets-Bollywood glamour of Neville Chester and Pallavi Ambekar at Coronation; the term photogenic doesn’t leap to mind when you think of the Prudential team.
But it can’t be random that the Pru is now the top performer over seven years and a few basis points behind Coronation over 10 years.
The only newcomer to the Global Manager Watch is the Ashburton Global Balanced Composite, which has not had a good start, coming 20th out of 23 over the 12 months to September. Its best-known fund manager, Wayne McCurrie, has left for the more sedate world of FNB Private Clients.
I would certainly rather go to one of the established BEE houses, such as Kagiso or Mazi, before considering them.
One thing about poor performance is that it takes a long time to get out of a hole. Foord, for many years one of SA’s most admired houses, is 19th out of 22 over three years as it shakes off a poor 2017.
I see the rule that funds with boastful names get punished is still true. The Sanlam Global “Unique” portfolio was the worst performer over the past 12 months, behind even an off form Coronation and Foord.