Swings, roundabouts and bumpy rides … how funds have fared
• Amid the Steinhoff scandal and political uncertainty some have shone and others shrivelled
South African hedge funds are now available to the public, or at least those who can write a proverbial cheque for R50,000. Yet they have not got investors’ adrenalin pumping. In fact, at R62.2bn under management, industry assets fell by almost 10% in 2017. This is about a third of the size of the local private equity industry, which is clearly the preferred way to access alternative assets.
Hedge funds certainly seem mundane compared with the much more exciting activity of investing in bitcoin, yet only 0.4% of people with bank accounts have bitcoin wallets, so growth potential is huge.
Private equity as an illiquid off-market asset has no correlation with the market, except if and when it lists or relists. Hedge funds claim to have no correlation to the market, but this is untrue for the dominant strategy, equity long/short, which sometimes has a 60% to 80% net positive exposure.
David Bacher of Corion Capital says most of 2017 was a time of benign volatility, which might sound nice. But hedge investors prefer choppier seas when they can exploit a share’s pain. Yet even for them, the tsunami known as the Steinhoff collapse was too sudden.
General equity funds hardly covered themselves in glory — 63% of the relative returns between funds from December 4-8 is explained by the weighting to Steinhoff; 57% of funds had a weighting above 2% and for every extra percentage-point weighting to Steinhoff a fund lost an extra 0.74%.
The top-performing equity funds for December were Satrix Quality, Satrix Dividend Plus, Bridge Equity Income Growth, Momentum Value Equity and Ci Engineered Equity Core. There are specialist firms that make up these names to sound scholarly yet confusing. The worst performer, the Sanlam Select Thematic Equity, sounds very cerebral, while Foord Equity landed an unexpected place in the unit trust dog house.
It was interesting to see where investors sought refuge in a crisis — not with the stodgy safety of the big-life offices, but with niche managers Abax and Fairtree (both also good hedge fund managers) and Perpetua.
I was interested to see two Momentum-run funds also getting net inflows — the Opportunistic Equity fund, presumably because it was supposed to sell Steinhoff high and buy low, and Trending Equity, which should have foretold the collapse.
The big loser was the Alexander Forbes Investments Institutional Equity fund, which used to provide “investment solutions” but no longer does.
In the high equity category, which used to be called balanced, there was a flight to the safety of Allan Gray, followed by the much underrated PSG (which in spite of the corporate connections between PSG Group and Steinhoff did not hold the retailer). Discovery, run by Chris Freund’s team at Investec and SIM Balanced, also had a healthy inflow.
Foord Balanced was the big loser, a myopic approach given that it is not playing a one-day game. Nedgroup Value, run by Foord, also had large outflows, as did Stanlib Balanced and Balanced Cautious, as well as Rezco Value Trend.
There were also outflows from Investec Opportunity, said to be a quality manager, which has the quality of New Look sales goods. Many of the lowequity funds experienced outflows as they have been unable to beat cash returns in recent years.
In the case of Absa Absolute, much of the outflow can be attributed to the departure of Errol Shear, the fund’s eccentric but cerebral manager. However, it is harder to explain the outflows from the excellent Prudentia, Inflation Plus and Charles de Kock’s Coronation Balanced Cautious. Before the week of December 4, about 80% of funds had returned more than 10% for the year, but by December 8 only half had.
Very few managers saw it coming. The share was down 91.7%. The industry coped better with more normal slumps such as the 10.2% dip in Anglogold Ashanti and 9.2% in Aspen.
The election of Cyril Ramaphosa was surely more predictable (although with no certainty), yet many hedge fund managers and their vanilla counterparts had not expected a rand rally, which among others pushed up Mr Price, TFG and FirstRand.
The US dollar was the worst asset class in December, losing 9.3% against the rand.
Even over three years, the dollar is the second-worst asset, with a 2.3% return.
Only resources was worse, with 2017 certainly a poor year for funds that adopted the value approach — the value silos at Investec and Sanlam had the worst returns and value-based hedge funds did even worse.
Bacher used to work at Brait before he left in protest at its poor investment in the UK’s New Look chain — money that would have been far better invested in the Brait (now Corion) hedge funds.
Take the Corion Prosperitas NCIS fund. This was nothing to do with Mark Harmon or dead marines, but refers to Novare Collective Investment Schemes. It has given a 2.3% annualised return over two years.
This might not merit the word “Prosperitas”, but looks great compared with the losses at New Look, symbolised by those piles of T-shirts marked down to 50p.
Bacher knows investment is not a one-day game, as he should, being the son of former South African cricket captain Ali Bacher. His long-only funds have acceptable returns; both his Stable and Growth funds have been ahead of the peer group since inception in 2015.
Of course, the long-only Corion funds are small as its core business remains hedge funds. Equity funds now account for only 21% of the hedge fund industry. Only Allan Gray Equity, with R41.9bn, is among the top 10 largest funds.
According to Morningstar, Allan Gray is the top large manager based on its asset-weighted rating, but Fairtree Capital is highest overall. Both firms have 100% of their funds rated fourand five-star. The top five are rounded off by Prudential, PSG and Personal Trust.
The worst are Alexander Forbes Investments, Ashburton, Stanlib Multimanager and Sanlam Multimanagers. Old Mutual, Investec and Satrix are middle of the pack.
HEDGE FUNDS SEEM MUNDANE COMPARED WITH THE MORE EXCITING ACTIVITY OF INVESTING IN BITCOIN