INVESTOR’S NOTEBOOK STEPHEN CRANSTON
There is a school of thought that performance surveys for pension fund managers should be banned and the suppliers of these evil documents burnt at the stake. I know that when Anne Cabot-Alletzhauser became head of research at Alexander Forbes, one of her aims was to discontinue the Forbes Manager Watch surveys, which remain the market leader in spite of incursions from Willis Towers Watson, Riscura, Absa and several others.
I sympathise with her view. Trustees might see that their manager has underperformed and then switch to one at the top of the table. Worse, a consultant may feel under pressure to make a switch, often at exactly the wrong time. If funds had moved out of RECM, Element or Investec Value, say, in November last year on the basis of recent performance, they would now be kicking themselves, as they would have missed a big recovery. I hope that consultants don’t make panic switches too often, though I know that there were times when they behaved like lemmings — the wholesale withdrawals from Allan Gray back in 1997-1998 is the classic example. Even if Allan Gray had another prolonged period of underperformance it would not have to face client walk-outs on the same scale. And one of the reasons is that it has a more professional client service team that can help manage expectations. Of course Allan Gray is much better known to the public these days, but brand can’t always protect against outflows.
Sanlam suffered severe outflows around 2000. I certainly do not believe that members of defined contribution funds should be made to choose between the constituents of the Large Manager Watch; even if they consult a financial adviser it won’t help much, as fewer and fewer financial advisers actually take the time to research managers, which is becoming a lost art. Most would pick on brand, and a few might look at performance surveys, but this is nowhere as important as getting a qualitative assessment of the manager.
If I made the members of my fund rely on a performance survey to pick managers. I would expect them to look only at the managers at the top of the table. But if they eliminated the bottom half of the table it would knock out Oasis, Old Mutual (or to be more precise OMIG MacroSolutions), Stanlib, Absa Asset Management and Foord. A few months ago Coronation was in the bottom half. Foord has had a poor year to date but it has been a powerhouse performer through the cycle. OMIG had a bad end to 2015, as it was heavily invested in banks and bonds, but it should be on most short lists for its good long-term performance and experienced team. And at the top end of the table over 12 months is Allan Gray, which had a return of 15.2%, double that of the number two, Sanlam Investments, with 7.3%.
I took part in a discussion about whether to remove Allan Gray as one of our pension fund’s managers about a year ago when its numbers did not look so hot. It was tempting to move, particularly as a new chief investment officer Andrew Lapping was appointed. But we held on, mainly because Allan Gray’s performance is countercyclical to most other managers. It certainly has a maverick approach, which applies to the way it names its funds, and I am not just talking about the years in which the local Optimal fund was a suboptimal investment, I am thinking of the Allan Gray Absolute Portfolio. You might expect it to be a conservative absolute return fund, like the Absa Absolute fund or the Old Mutual Multi Manager Absolute Balanced, but in fact it takes the most extreme views in the fund, which is highly concentrated. Not the ideal product for conservative investors, so always look beyond the label.