Bou­tique firm beats the heavy­weights

Weekend Argus (Saturday Edition) - - GOODHANGOUTS - Rag­ing Bull Award for the Best Off­shore Global Eq­uity Fund – the top-per­form­ing fund on straight per­for­mance in Pro­fileData’s off­shore global eq­uity gen­eral sec­tor over three years to De­cem­ber 31, 2009

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

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