Look to the ex­perts if you want vin­tage per­for­mance

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

Io­rig­i­nally set out to write this col­umn to mark Na­tional Women’s Day two weeks ago. One rea­son I wrote this col­umn was my in­tense ir­ri­ta­tion at a gold coin com­pany that is­sued a me­dia release say­ing it was minting an­other edi­tion of its “Princess Di” coins to mark Women’s Day.

This was cheap ex­ploita­tion of what should be a se­ri­ous event, and was made worse by the fact that the coins are not a real in­vest­ment. Th­ese “per­son­al­ity” coins are to­tally over-priced rel­a­tive to their gold con­tent.

The other rea­son I wrote this col­umn was to tell you about two im­pres­sive women whose paths I cross reg­u­larly be­cause of my fas­ci­na­tion with blends, both wine and in­vest­ment. Many of the in­vest­ments I have made have been blends and many of my favourite wines are blends.

I sim­ply do not have the depth of knowl­edge or the time to make de­ci­sions on how to blend as­sets cor­rectly, let alone try to pick each se­cu­rity in each as­set class. I am not pre­pared to take such risks with the bulk of my sav­ings.

Nei­ther do I try to blend my own wines.

In­stead, I have tended to use bal­anced, or what the unit trust in­dus­try calls flex­i­ble, funds for most of my in­vest­ments. I have re­lied on pa­tience and sav­ing over the long term to pro­vide me with the re­sults I want. This ap­proach has served me well.

I am not try­ing to ar­gue that all blends, whether wine or in­vest­ment, are good; some blends are ex­cel­lent, some are drink­able and oth­ers can­not be used even as vine­gar.

One thing I have learned is that a good blend does not hap­pen by chance or by try­ing to pig­gy­back on the suc­cess of oth­ers. You have to know what you are do­ing.

This brings me to Women’s Day. Two of the more re­mark­able blen­ders I have met are Anne Cabot-Al­let­zhauser, the chief in­vest­ment of­fi­cer of mul­ti­man­ager Ad­van­tage (part of the FirstRand Group), and Norma Rad­cliffe of War­wick Wine Es­tate (on the R44 to Stel­len­bosch, off the N1 be­fore Paarl).

Both, in their way, are zeal­ous about get­ting their blends right.

Anne has been at it for 29 years. Norma cel­e­brated 25 years of wine­mak­ing this year.

They en­tered their pro­fes­sions when th­ese were male-dom­i­nated. To a lesser ex­tent, this is still the case to­day.

A while ago, I at­tended a brief­ing by Anne on her ap­proach to multi-man­age­ment. I was amazed at the ex­tent to which she tests the abil­ity of as­set man­agers to add real value.

Multi-man­age­ment is sim­ply an­other way of cre­at­ing a bal­anced, or flex­i­ble, port­fo­lio. But in­stead of a sin­gle as­set man­age­ment com­pany blend­ing the as­set classes and se­lect­ing the un­der­ly­ing in­vest­ments, the multi-man­ager de­cides on the as­set mix re­quired to achieve dif­fer­ent re­sults. The multi-man­ager then se­lects as­set man­agers from dif­fer­ent as­set man­age­ment com­pa­nies to de­cide on the un­der­ly­ing in­vest­ments. This ap­proach is also known as best-of-breed.


An­other im­por­tant el­e­ment of blends is that they do not pro­vide a one-size-fits-all so­lu­tion. Good wine blen­ders have some­thing in mind when they blend their wines. For ex­am­ple, Norma will tell you that her Tril­ogy blend goes best with veal, game and in­tensely flavoured stews, as well as bit­ter chocolate desserts.

Like­wise, most in­vest­ment blends ex­ist to achieve dif­fer­ent tar­gets, which may in­clude re­duc­ing volatil­ity risk (the propen­sity for an in­vest­ment to swing widely in value) or earn­ing a cer­tain re­turn – for ex­am­ple, three or four per­cent above inflation.

Ev­ery time I have spo­ken to Anne or at­tended her brief­ings, I have learned some­thing new – or rather, a lot new.

I have also been to a num­ber of wine tast­ings at War­wick, and was for­tu­nate to be in­vited to a tast­ing to cel­e­brate Norma’s 25 years in the in­dus­try.

Much of the fo­cus at the tast­ing was Norma’s tak­ing us through her blends of the past quar­ter-cen­tury, start­ing with the 1984 Femme Bleu, through to the more well known Three Cape Ladies and the flag­ship Tril­ogy.

Her son, Mike, re­cently bot­tled a spe­cial blend, First Lady, to recog­nise the con­tri­bu­tion made by his mother.

Norma can be com­pared to a sin­gle as­set man­ager, as the grapes used for the var­i­ous blends come from the War­wick vine­yards.


Apart from mark­ing Women’s Day (al­beit a bit late) by men­tion­ing th­ese two re­mark­able peo­ple, there is a point I wish to make: get­ting it right con­sis­tently does not hap­pen by chance. It means years of test­ing, both you and your prod­uct, en­sur­ing that the ba­sic in­gre­di­ents are of the best qual­ity and that the mix pro­vides the right bal­ance for what you want to achieve.

It is for this rea­son that I am con­temp­tu­ous of many so-called multi-man­agers, in par­tic­u­lar most of the unit trust funds of funds (FoFs).

The peo­ple who man­age th­ese funds sim­ply do not have the time, ded­i­ca­tion or ex­per­tise to man­age them prop­erly.

Al­low me to di­verge. My brother-in-law owns the Oc­ci­den­tal Bar at the Kim­ber­ley mine mu­seum. Re­cently, some­one at­tempted to sell him some­thing called Pearly Bay. It was so dread­ful that he added vine­gar to some of it and gave the re­sult to one or two of his cus­tomers as an ex­per­i­ment. They found the vine­gar blend the bet­ter op­tion.

I tasted Pearly Bay without the vine­gar and I can say it is quite the worst wine I have ever tasted.

As you can have a Tril­ogy or a Pearly Bay, so you can have an Ad­van­tage port­fo­lio or one of those dread­ful bot­tom-of-ev­ery­thing, bro­ker white-la­bel fund of funds, where a fi­nan­cial ad­viser, in most cases without the nec­es­sary time or ex­per­tise, is do­ing the blend­ing.


Let me give you an ex­am­ple. Without first looking at the per­for­mance ta­bles, I de­cided to se­lect a unit trust sub-cat­e­gory that was im­por­tant for long-term sav­ings (namely, re­tire­ment), where the in­vest­ment port­fo­lios are a blend of as­set classes and where in­vestors are pro­tected to some ex­tent from high-risk bets by the pru­den­tial in­vest­ment re­quire­ments of the Pen­sion Funds Act.

I chose the do­mes­tic as­set al­lo­ca­tion pru­den­tial medium eq­uity funds over three years to the end of June 30, 2009.

I found both vin­tage per­for­mance and vine­gar.

The best per­former was the Pre­scient SA Bal­anced Quan­tPlus Fund, with an av­er­age an­nual re­turn of 11 per­cent – not bad in the cur­rent mar­ket.

The vine­gar was sup­plied by the Quan­tum Bal­anced FoF, with an av­er­age an­nual re­tur n of mi­nus 1.32 per­cent.

In­ci­den­tally, in sec­ond place, and the best-per­form­ing fund of funds, was the Um­bono Core Man­aged FoF, with an av­er­age an­nual re­turn of 9.51 per­cent. (Not bad un­der cur­rent mar­ket con­di­tions.) This fund, which is in the Old Mu­tual sta­ble, uses tracker, or pas­sive, port­fo­lios as its build­ing blocks. So, in sim­ple terms, the dif­fer­ent as­set classes pro­vide the av­er­age per­for­mance of the mar­ket. The skill lies in blend­ing the as­set classes.

I then took a closer look at the Quan­tum Bal­anced FoF. When I looked at the fund’s fact sheet, I found that 36 per­cent of the fund is in two other funds Quan­tum man­ages: Quan­tum Core In­come and Quan­tum Global Man­aged. And blow me down, I found that both th­ese funds are also multi- man­aged funds. And the Global Fund is man­aged by RMB As­set Man­age­ment, three of whose funds make up more than 20 per­cent of the port­fo­lio.

On its web­site, Quan­tum In­vest­ment Part­ners refers to it­self as “mas­ter blen­ders”. I would sug­gest they take a few lessons from a real in­vest­ment mas­ter blen­der – Anne – or else the peo­ple who are plac­ing their money in Quan­tum’s hands will be re­sort­ing to Norma’s blends.

Fi­nally, a note of warn­ing: be very care­ful when an ad­viser sug­gests that you place your money in a white-la­bel fund that op­er­ates un­der the li­cence of an­other unit trust man­age­ment com­pany, in par­tic­u­lar if it is a fund of funds. (Quan­tum is not one of th­ese and does have qual­i­fied peo­ple mak­ing its in­vest­ment de­ci­sions.)

Many white-la­bel funds charge ex­ces­sive fees and are op­er­ated by fi­nan­cial ad­vis­ers who do not have the nec­es­sary ex­per­tise or time to do so prop­erly.

Cameron is the au­thor of Re­tire Right (Ze­bra Press), which is now in its sec­ond edi­tion.

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