Funds that kept their focus on local shares enjoy rich pickings
• PSG Balanced, which took a bet on SA listed property, was the best quarterly performer
Those fund managers who believed they should focus offshore were caught out recently. Over the three months to January 31 the JSE all share index returned 21.2%. But partly because of a stronger rand the MSCI world index lagged with a 7.9% rand return, and the world government bond index fell 5.8%.
Within equities the small cap index was up an impressive 26.5% — though it is still down 5.4% a year over three years.
The mid cap index had been a catastrophic performer but was much in line with the overall index at 20.4%. Even so, it is still down 9.3% over the past 12 months.
Markets can be cunning, baffling and powerful. Fund managers who claim they understand them are fooling themselves. Who would have predicted, for example, the 29.3% recovery in SA listed property over just 90 days?
Short-term performance should always be treated with scepticism, but it can show which managers are prepared when turns take place.
The Alexander Forbes Manager Watch Global Best Investment View has a credible list of managers as it cuts out the rats and mice that tend to clutter the unit trust tables.
Over the quarter PSG Balanced was the best performer with a 23.2% return. I am not suggesting you rush out and switch your entire pension capital into the fund, but nor would the team at PSG suggest that. But through its contrarian approach it has made money from different stock picks and asset allocation calls from its peers.
When others were selling, it took a 2% extra weighting in local property. And the fund owned Glencore, which until recently looked like a poor alternative to Anglo and BHP but has bounced back and is up 33% in the fourth quarter of 2020. PSG Asset Management has bought out-of-favour retailers and related global property shares such as discount mall owner Tanger Factory Outlets and US retail chain Nordstrom.
The second best performer was Coronation, with a 16.3% return. It is much more of an allweather performer than PSG and for the past five years it has been the best of large managers. The lead manager, the dependable Karl Leinberger, is backed up by the more mercurial SarahJane Alexander.
The chemistry seems to work. The house was buying into banks such as FirstRand and life offices such as Momentum Metropolitan and Sanlam from the middle of the year, just before these sectors recovered.
Just behind with 16.2% return over three months is the Nedgroup Balanced Fund run by Truffle. This won’t be offered to a board of pension fund trustees very often as it is a retail product. But Truffle should be on most shortlists. Including their apprenticeship at RMB Asset Management, key staff such as chief investment officer Iain Power and portfolio manager Saul Miller easily have as much experience as, say, Leinberger,
or PSG chief investment officer Greg Hopkins.
It is always reassuring to see a black-owned manager among the top performers, and Kagiso is fourth with a 15.6% return. Unfortunately, it has been inconsistent because it often bets heavily on smaller-cap shares such as Libstar, and Clover before that. But it retains its first position over five years.
Of the other BEE managers Prescient Balanced did well, coming ninth with a pleasing 15.3% return, but neither Oasis (28th with 11.3%) nor Balondolozi Active Balanced (30th at 10.3%) took enough risks to add any value in a rising market.
The worst performer, Rezco Value Trend, must have taken the decision that the downside risk was still too much and was barely positive with a 2.3% return. I suspect there will be misalignment of expectations
between clients and Rezco. Balanced fund clients are looking for a fund that is positioned to exploit asset classes when they rise and that broadly keeps to a 65% to 75% equity allocation. At the end of January Value Trend had less than 30% in equity. But to be fair, Rezco had a very low equity allocation in January 2020 and by March its managers looked like geniuses.
Our own pension fund consultants are conservative and prefer to pick entirely from the Large Manager Watch, the 10
largest balanced managers. The argument is that these businesses have large teams and they have considerable backup in terms of in-house fundamental and quantitative research.
And just as no fund manager ever got fired for buying IBM (at least in the 1970s and 1980s) no consultant got fired for hiring Allan Gray. In fact Allan Gray was top of the Large Manager Watch for January but it is below average over three years (9th) and five years (7th).
Ninety One has had an ordinary first year since it changed its name from Investec Asset Management. But there would have been a focus on rebranding and schmoozing shareholders as it is independently listed. A little sizzle and more sausage for clients in 2021 please.
THE MID CAP INDEX HAD BEEN A CATASTROPHIC PERFORMER BUT WAS MUCH IN LINE WITH THE OVERALL INDEX AT 20.4%
THE WORST PERFORMER, REZCO VALUE TREND, MUST HAVE TAKEN THE DECISION THAT THE DOWNSIDE RISK WAS STILL TOO MUCH