With high, low and pear-shaped returns, funds are just too many
Six-month results over a torrid period show a spread of types of performance
It is useful to take stock of fund performance at the half-year stage, now with the economy so much weaker than expected. The high-equity balanced category is a fair place to examine fund manager skill. While a general equity fund needs to be invested at least 80% in equities through thick and thin, balanced funds can use the full toolbox of asset classes, including bonds and property and up to 30% in foreign assets. Over six months, the balanced category has seen a modest decline of 1%, which will surprise most of us who have lived through the continuous bad news of Covid-19. The decline of the rand has helped boost the offshore portion.
It is quite a large sample of 253 funds, though it is inflated as stats provider FundsData treats different share classes as discrete funds. A few funds have prospered in this environment. The High Street High Equity Fund, a little-known team schooled at the old UAL Merchant Bank, returned 18% over the first half of 2020; Gryphon Prudential, a breakaway from the old Gensec merchant bank, was up 16%. Granted most of the public won’t get access to the top performers — Long Beach Managed, up 13%, sounds more like a cocktail than a unit trust.
The best of the mega funds was Ninety One Opportunity, up 8%. This “quality” fund’s defensive approach to share selection has proved beneficial. Rezco’s Value Trend and Managed Plus are both up about 6% as chief investment officer Rob Spanjaard has challenged the orthodox view that active asset allocation is just speculation or “market timing”. Fund managers who do not feel competent to adjust portfolios should probably look for another career or just shuffle papers in the back office.
It was good to see a bounce back from Patrice Moyal’s Visio Balanced, up 9%. Moyal has struggled recently, but his highconviction approach works. Probably too volatile to treat it as a one-stop investment though. Short-term figures can be an early warning system. How did Kagiso Balanced fall 11% over six months? Its high allocation to mid and small cap shares would have hurt. I had hoped Kagiso was ready to be treated as a mainstream manager and get out of the BEE sandbox. It has excellent stockpickers but needs to beef up its risk management.
We are told not to worry about short-term performance as it is not statistically relevant. But it doesn’t take long for shortterm performance to turn into long-term performance. Just look at Bridge Balanced, which is now close to the bottom over all periods up to five years. It has relied heavily on investment into listed property which is its main area of expertise. It is down 16% over the six months. Its stablemate, Bridge Managed Growth, did even worse, losing 21%. Marriott, which has a similar philosophy, did far better and was in line with the average.
Many of the worst performers have little public profile. Amity Managed Select, known to clients as the Amityville Horror, lost 9% over the six months. Things have also gone pearshaped for the talented Andrew Vintcent at ClucasGray Equilibrium, which is down 8%.
It is widely accepted that large funds find it hard to outperform. Allan Gray Balanced, the largest fund in the sector, was in the middle of the pack, giving the average return of the sector almost down to the nearest basis point. Coronation Balanced Plus has given an almost identical return. It is not surprising that many investors are questioning whether they should continue to pay 1.5% a year for average performance (and sometimes far worse than that) when they can pay 0.5% to Satrix or Invest and get the average more consistently.
You can pay even less than that — just 0.36% for the clunkily named CoreShares OUTmoderate index, part of the OutVest range. And you don’t have to pay “adviser” fees on top either.
One large manager that has recovered nicely is Foord, though not before it had lost some quite substantial business from advisers and asset consultants. Up about 6%, it was in line with Ninety One Managed, though it is hard to imagine anyone more different from the pugnacious Dave Foord than Ninety One’s Gail Daniel. Though they certainly share a passion and instinct for investments.
There is a proliferation of funds, which is not healthy in a small economy such as SA. In my view the regulator has permitted far too many financial advisers, whose core competence is sales and service, to set up their own investment portfolios. And surely it is time for institutions to reduce proliferation? Sanlam has the Amplify and Graviton range, Sanlam Multimanager, Sanlam Investment Management and is opening its Sanlam Private Wealth range to a wider public. And it is a shareholder in Denker, which has a higher octane, less relaxed, approach to investment. Old Mutual, with an internal investment manager and a multimanager, is clean in comparison.
FUND MANAGERS WHO DO NOT FEEL COMPETENT TO ADJUST PORTFOLIOS SHOULD SHUFFLE PAPERS IN THE BACK
MANY INVESTORS QUESTION WHETHER THEY SHOULD KEEP PAYING 1.5% A YEAR FOR AVERAGE PERFORMANCE