eneral equity remains an important category, even though the majority of new money has gone into the one-stop multi-asset funds, mainly in the high equity and low equity categories.
It is an easy default to buy one of the popular equity funds such as Allan Gray, Investec and Coronation. They have been highly successful in spite of their size. The market has been narrow, with a few large caps, such as Naspers, carrying the rest. But the next few years might be quite different.
Research by Nobel laureates such as Kenneth French and Eugene Fama show that small caps outperform over time. It is hard for the lumbering dinosaur funds to add value by investing anywhere outside the top 40 or to switch nimbly between styles such as value and momentum.
This month we look at five distinct high-quality funds.
They should all be on the radar of multimanagers and top financial advisers.
The outlier is Discovery Equity, which is managed by Investec Asset Management. But it has less than R2bn under management and offers a classic Fama-and-french factor approach.
There are some differences in methodology, but it makes sense to look at this fund as a more diversified alternative to the Rafi index, which also uses four factors to assess shares.
There probably wouldn’t be too much risk recommending this fund as a middle-of-theroad equity product.
Other funds in this selection probably shouldn’t be purchased on a standalone basis,
Gas they are just too feast-orfamine in nature.
Element Earth Equity has wisely been keeping a low profile. At the end of 2015 nobody would have been boasting about its track record. But now it is a standard bearer for orthodox deep value. This was once the stomping ground of Allan Gray, but now has a few other followers — John Biccard at Investec Value and possibly (though much more nuanced) Piet Viljoen at RECM.
Element would make an excellent counterfoil to Anchor Capital. The core of Anchor’s philosophy is that it is “not value”. Its share portfolio will have little in common with Element, and its return series will be quite different. Anchor also has a showbiz approach (why on earth did it list on the JSE?) somewhat different from Element, which is stuck in an attic in the far end of Cape Town.
Laurium is a welcome relief as it does not get caught up in these “value or not value” debates. It is just a strong, intelligent fund manager that is perhaps a little conservative when it comes to taking positions away from the index. This is due to its hedge fund heritage and the realisation that active fund managers shouldn’t feel the need to take bets they aren’t confident they can win.
But any multimanager should seriously consider Laurium for its line-up.
Many have already invested with Mazi Capital, which at R49bn is more than double the size of Laurium and more than 20 times larger than Element. Founder Malungelo Zilimbola has the sliverware to prove his ability as a fund manager — it could be luck, of course, but he has helped make his luck.
Zilimbola had an unpleasant divorce from Patrice Moyal at Visio a few years ago, but if anything, Mazi is now the stronger brand. It is certainly time to look more broadly at the general equity universe. These five funds are a good place to start.
Malungelo Zilimbola, founder of Mazi Capital.