Boutique firm beats the heavyweights
Local boutique manager RE:CM scooped the Raging Bull Award for the best offshore global equity fund away from heavyweight managers competing in the sub-category.
Heeding the words “be fearful when others are greedy and greedy when others are fearful” during the period dominated by the global credit crisis earned the RE:CM Global Fund top position over the three years to the end of December among offshore-based global equity funds registered with the Financial Services Board. These are the only offshore funds permitted to be marketed in South Africa.
The RE:CM fund is domiciled in Guernsey.
RE:CM, which is based in Cape Town, is a value manager that invests in shares priced below what it considers them to be worth. The manager believes such shares will return to fair value over the long term.
RE:CM looks for shares that fit these requirements without first determining how much to allocate to regions, countries or industries. As such, it is known as a bottom-up manager.
The Global Fund was first out of the 37 funds with a three-year history in ProfileData’s global equity general category, showing a return of 4.08 percent a year over three years (according to ProfileData).
It and the Orbis Global Equity Fund (see were the only two global equity funds to achieve a positive return over the period.
Piet Viljoen is RE:CM’s founder and co-manages the Global Fund with Daniel Malan and Wilhelm Hertzog. He says at the height of the global equity bull market in 2007 and early 2008, his company was criticised for taking a conservative stance on global equities.
The manager launched the fund in March 2006 and could only buy enough shares to take the fund’s equity exposure to 65 percent before increasing its cash weighting again.
Viljoen says at that stage RE:CM was not able to find shares that offered value on global markets.
As the global equity bull market reached its peak in 2007, the fund lost investors, who believed the manager held too much cash “when cash was trash”, Viljoen says.
But Viljoen says RE:CM was becoming more and more fearful about buying shares.
By the time the equity markets crashed in October 2008, RE:CM had only about 50 percent of the fund exposed to equities. This buffered it from some of the worst effects of the crash.
Viljoen does not claim kudos for the asset allocation decision that left the Global Fund in the safety of lots of cash in the market’s darkest hours. He says in a recent commentary on the fund that “it was simply a case of not being able to find cheap assets”.
The decision to buy lots of undervalued shares after the market crashed late in 2008 was, however, a more deliberate one in line with the principle of being greedy when others are fearful.
Viljoen and his team both increased the fund’s holdings in existing companies and bought into other high-quality ones.
By January last year, the fund was almost fully invested, and its equity holdings had increased to 93, from 23 in June 2008. This helped the fund enjoy more than its fair share of the market recovery.
Given the course of the recovery, you may think Viljoen held the fully invested position until December. In fact, he has been selling shares since February last year, and caution has again become the watchword.
By the end of last year, the fund’s equity holding was back down to 65 percent, Viljoen says, and it will stay that way until RE:CM again finds cheap, quality shares on the global market.
Viljoen says RE:CM’s bottom-up stock-picking approach has kept the fund mostly in developed markets, with the biggest holdings in the US and Japan.
Speaking to investors last year, Viljoen said they should not worry about the fund’s large exposure to US-listed shares despite the US’s attempts to devalue its currency. The companies in which the fund is invested, he said, earn a substantial portion of their revenues from countries outside the US.
He also noted that the fund had done well by avoiding emerging markets, which sold off much more than developed ones after the credit crisis. These markets did recover after the crisis, but Viljoen says these shares remain risky and are priced for above-average growth – “a toxic mix for us, as value investors”. – Laura du Preez
Superior stock-picking skills with the help of some hedging at the height of the bull market in 2007/8 were behind Allan Gray taking yet another Raging Bull Award for the management of a domestic asset allocation fund.
At this year’s ceremony, the Allan Gray Balanced Fund, a prudential variable equity fund, won its fourth Raging Bull Award (it has previously won for performance to the end of 2005, 2003 and 2002). Last year, Allan Gray’s prudential low equity fund, the Stable Fund, won the award.
Asset allocation funds can move assets between cash, property, bonds and equities.
Prudential funds limit themselves to no more than 75 percent in equities and adhere to various other investment guidelines.
Prudential variable equity funds conform to the prudential investment guidelines but within those limits have no restrictions on how high or low to take their exposure to the various asset classes.
Allay Gray manages its funds in terms of a bottom-up valuation basis (see main story,
Although the Balanced Fund underperformed its peers on straight performance last year as a result of a cautious stance on equities, the fund received the Raging Bull Award for its longerterm risk-adjusted performance and, on this basis, the fund was ranked ahead of all the other domestic asset allocation prudential funds.
The Balanced Fund had the highest PlexCrown rating (five) for periods up to five years to