Perpetua Met Balanced, Investec Managed, Truffle Met Balanced, Element Balanced, Ashburton Balanced
The high-equity category is by far the largest in the unit trust industry, with R414bn under management.
It has benefited from its status as the home of the most growth-orientated stable of funds that still qualify under Regulation 28 of the Pension Funds Act — these funds have a maximum 75% exposure to equities and 25% to offshore assets.
It is very convenient for financial advisers to put their retirement annuity clients into one or more high-equity funds rather than doing their own asset allocation and splitting between local equity funds, foreign equity funds and so forth.
Usually, they are not qualified to make these allocations in the first place. But some laziness has crept in and advisers focus on a few balanced funds such as Allan Gray Balanced, Coronation Balanced Plus, Foord Balanced and Investec Opportunity without looking closely at other funds that are in the sector.
This month we consider some of the overlooked funds that deserve consideration.
Investec Managed is not exactly ignored, with R10bn under management. But it should be much bigger given the reputation of Gail Daniel. A founder member of Investec Asset Management, the then Gail Boon was groomed by Investec Asset Management boss Hendrik du Toit to be its first star portfolio manager. Even given the randomness of past performance, Daniel’s record at the Worldwide and Equity funds and at this fund has been impressive. Investec Managed is the best balanced fund over the past 20 years.
There are certainly misconceptions about the Managed fund. It is not an aggressive fund, staying firmly within the Regulation 28 requirements. Perhaps Daniel, who is (apologies) an out-of-the-ordinary manager, is less easy to sell as a manager of stodgy retirement products than Clyde Rossouw at Opportunity Fund or Chris Freund at Equity Fund, who are more obviously safe pairs of hands. Yet Daniel feeds off the same investment process as Freund and users the same team of analysts. The fund is worth a further due diligence from fund pickers.
Ashburton, FirstRand’s three-year-old asset management business, is much more of a new kid on the block, though much of its team, not least chief investment officer Paolo Senatore, built up a solid track record running portfolios for RMB Private Clients. There is certainly plenty of experience at the Ashburton Jersey unit, which has been around for more than 20 years. Ashburton is also the first asset manager for many years to be explicitly top down (asset allocation led), though it has some stock analysts on board.
Much as advisers pretend to ignore past performance they deserted deep value funds on the back of their poor performance, which admittedly lasted for at least six years. But in the year so far these funds have beaten the market by 17% to 22% as sectors such as gold have bounced back. They are clearly differentiated from mainstream balanced funds, and present a good way to diversify portfolios.
This month we look at two balanced funds that fit into this category — Element and Perpetua. Element, in its incarnation as Fraters, was an early supporter of environmental, social and governance issues, though that has not proved to help it hold on to clients. But every dog has its day, and Element has had a superb first half of 2016. As a business, with just a few hundred million under management, it is on life support, and it would be a tragedy for the diversity of the industry if it went under. The portfolio managers of Element Balanced, Terence Craig and Jeleze Hattingh, are astute and deserve at least some industry support.
The other deep value fund, Perpetua Balanced, is just as small as Element Balanced, with R7m under management, but at least it has a much more robust institutional book: the house has R5,5bn under management. Its marketing-savvy chief investment officer Delphine Govender calls her fund “true value” — not the dreaded deep value — and some of its shares, such as Netcare and British American Tobacco, are not screamingly cheap.
The last fund we look at, the Truffle Balanced fund, probably doesn’t need much publicity. It has gathered R2,3bn under management under its own steam and it has now won the highly prestigious mandate to run the Nedgroup Investments Managed fund. There is huge experience among its fund managers, such as Iain Power and Charles Booth, who were leading lights at RMB Asset Management. Its portfolios probably have more in common with the big balanced funds than the other four funds, and it suffered in the short term from low exposure to resources as well as its bet on UK property, but long term it seems a solid bet.
Some laziness has crept in and advisers focus on a few balanced funds without looking closely at other funds in the sector