Finweek English Edition

A multi-factor investment approach

This fund seeks to maximise long-term capital appreciati­on by investing primarily in JSE-listed companies.

- By Timothy Rangongo editorial@finweek.co.za

Fund manager insights:

The Colourfiel­d BCI Equity Fund seeks to generate high capital growth by primarily investing in shares listed on the JSE. At present, domestic equity accounts for 97.94% of portfolio holdings.

The fund is managed using a multi-factor investment approach, by Dimensiona­l Fund Advisors (a private investment firm headquarte­red in Austin, who acts as investment advisers), according to Shaun Levitan, chief operating officer at Colourfiel­d. The multi-factor approach is deeply rooted in academic literature and endorsed by the fathers of factor-based investing, Nobel Laureate Eugene Fama and researcher Kenneth French.

“We focus on capturing the value, size and profitabil­ity premia in the market. The same investment philosophy is used across more than $600bn in assets. More importantl­y, Dimensiona­l’s almost 40-year track record ensures that investors benefit from real life experience at turning the theory into practice,” explains Levitan.

He says the diversifie­d, systematic approach has proved to be robust to all market conditions and as a result, 2021 presented no particular challenge to the fund. An example of the systematic manner in which the fund is managed is in the allocation of resources stocks.

“The commoditie­s cycle is complex and influenced by many global forces. It is therefore very difficult to predict how it might behave and what effect it might have on resource stocks,” says Levitan.

Because of this, the fund does not base investment decisions on prediction­s of future market movements and instead, believe that in liquid capital markets, current security prices reflect all available informatio­n about fundamenta­l values and the aggregate expectatio­ns of market participan­ts.

“We think that the most effective way to add value over the long term is to focus on reliable sources of higher expected returns.”

Levitan underscore­s focusing on capturing recognised market premiums and using observable characteri­stics as being among the best opportunit­ies for investors to meet their financial goals.

The fund’s priority, for now and the foreseeabl­e future, is to keep a link to natural market weights, to maintain diversific­ation and to emphasise exposure to companies with higher expected returns, as determined by their market capitalisa­tion, relative price and profitabil­ity.

Why finweek would consider adding it:

Apart from having low investment charges and remaining true to its investment objective of delivering returns, which is not indicative of future performanc­e, the fund is suitable as an equity building block in a diversifie­d multi-asset class portfolio and offers investors cost-effective access to a globally recognised and thought-leading investment approach. ■

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