Quality style makes for top performance

Raging Bull Award for the Best South Africa-domiciled Global Equity Fund on straight performance over three years to December 31, 2018

A PHILOSOPHY that focuses on businesses that are able to generate cash and grow their income base, rather than agonising over valuations, enabled the BlueAlpha Global Equity Fund to outperform all other global equity general funds over three years to December 31, 2018, making it a Raging Bull Award-winner.

The fund earned a return of 4.22% a year over three years, while the average return of the 63 funds in the sub-category with a performance history of at least three years was 1.14%, according to ProfileData.

BlueAlpha follows a “quality” investment philosophy. It identifies shares that it believes have proven ability to produce superior returns over the long term.

Nicola Broekhuysen, a research analyst at BlueAlpha, says the main pillars of the asset manager’s investment process are:

Value creation: whether a company can generate strong cash returns;

Growth potential: whether a company has the ability to grow;

Quantitative analysis: in-house quantitative models that are used to identify new investments and confirm existing research.

“Share selection is driven by focusing on a company’s earnings cycle – specifically cash earnings, because prices follow earnings over the long term,” says Broekhuysen.

“Companies that generate high cash earnings are able to reinvest at high rates of return. This is an essential driver of profit generation, which in turns drives shares prices and dividends.”

The fund invests in businesses that generate high returns on invested capital.

“High-return companies typically deliver strong cash generation. They can reinvest in high-return growth without undermining underlying returns,” she says.

In view of the fund’s quality tilt, BlueAlpha prefers to focus on company specifics. “Its portfolio is positioned to maximise value creation for investors and compound returns over the long run,” says Broekhuysen.

THE CO-MANAGER of the BlueAlpha BCI Global Equity Fund, Walter Jacobs.