Domestic funds ace it
Reflecting a strong year in local assets, local funds also made the best use of their 25% offshore allocation
At the Morningstar Awards it is a case of less is more. There are awards for the seven key categories, and none for the more obscure ones. The main focus of the awards is on the multi-asset classes. In these the main skills of asset managers all come together: asset allocation, stock picking, yield curve management and often the use of derivatives.
These are also the large popular categories. There are some small differences but the Morningstar, Flexible, Aggressive and Moderate categories, will be close to the
Asisa Flexible, High Equity, Medium Equity and Low Equity funds.
One significant difference is that Morningstar does not divide funds into global, worldwide and domestic categories — multi-asset international funds such as Investec Global Strategic Balanced and Coronation Global Managed have been winners.
This year, reflecting a strong year in local assets, all the winners were domestic funds, though they also made the best use of their 25% offshore allocation. The winner of the largest asset allocation category, Agressive, was PSG Balanced, a very shrewdly managed fund; in Flexible a previous winner, Centaur Flexible run by Roger Williams came top, proving that there is no need to be a large house.
But the most remarkable turn of events is the double prize in the Cautious and Moderate categories for NFB. No business with its origins in life insurance broking has ever done so well in these awards.
There are three single sector awards. No evening like this would be complete without an SA Equity Award, and this year it goes to a previous winner: Mazi Capital Prime Equity. Fund manager Malungelo Zilimbola was a well respected fund manager when he worked with Patrice Moyal at Visio but he has done even better on his own.
There is also a Bond Fund Award. It might not garner much interest from the public but it’s critical to measure capabilities in the sector. Coronation Bond Fund won in a close contest with the Absa Multimanaged Bond Fund.
The only other victory from the gigantic unit trust companies was in Global Equity, in which the Investec Strategic Equity fund, in a surprise move, beat the stalwart Orbis Global Equity Fund
The SA Equity Award is probably the most closely watched as it pits like with like strategies. One or two good stock picks can make all the difference. Runner-up was the Aluwani Top 25, which outperformed all the other concentrated large cap funds such as Coronation Top 20 and Sanlam Top Choice. It was a reboot of the successful
RMB Strategic Opportunities Fund.
Fund manager Patrick Mathidi says the average 25% holding in Naspers helped drive the strategy. But the biggest contributor was an 8% exposure to Mr Price, though some shares still hurt, such as BAT and Richemont in the last quarter, and fertiliser producer Omnia. It also helped that the fund had no gold or platinum shares. But Zilimbola proved impossible to beat on a risk-adjusted basis. He has returned 17.9% over a year and 8.5% over three years. He describes his style as investing in companies with sustainable business models, credible management teams, healthy balance sheets and robust cash flows, not that questions haven’t been asked about some of his top holdings such as Anglo American, Old Mutual, MTN and Aspen. But the 20% holding in Naspers would have carried the fund quite a long way, And the fund also holds blue chips such as Firstrand, Standard Bank and Sanlam.
Williams, winner of the Flexible category, says that in spite of a stronger rand he was able to add value through international stock picks. Chrysler automobiles, for example, was up almost 80% in rand. He says that was a deep value share on a 1.5 p:e but there was a catalyst to unlock value as it was unbundling Ferrari, which was a highly successful listing.
Netease, a large Internet stock in China, is up by 40%. Ideally, Centaur likes to sell shares at R100 and buy them back when they reach R70, and it has achieved this several times. He says the fund is designed for long-term growth but clients need to stomach a 25% drawdown at times, though he assures clients they need not tolerate a 50% loss. As a pupil of Roy Mcalpine and Jamie Inglis at the old Liberty Asset Management, he has a conservative streak buried somewhere.
Old Mutual will be disappointed that its Flexible Fund did not win in a good year for the group’s multiasset funds. The fund is free to invest across the asset class spectrum but most of the time it sticks close to regulation 28 of the Pension Fund Act, with about 77% in equity.
It does not in practice go below 50% in equity. It was rewarded for its comparatively aggressive stance with a 12.1% return in 2017. Fund manager Peter Brooke says the fund aims to look for different classes, and against conventional wisdom repatriated some of its foreign assets when the rand collapsed after Nenegate (when former finance minister Nhlanhla Nene was removed in 2015).
In property he now prefers the high yield domestic shares, such as
What it means: Domestic funds made the best use of their 25% offshore allocation this year, resulting in a winning formula