No secret recipe for our success, says company of the year
South Africa’s top asset manager doesn’t have any great investment secrets that enabled it to beat its peers and win this year’s main Raging Bull Award. In fact, its winning recipe is very straightforward. It consistently adheres to its long-standing investment philosophy to deliver superior returns to its investors, and everything it does is centred on achieving that goal.
“We simply use our analysis of the fundamentals of a business to determine its underlying worth. We then compare this with the price the market places on this (the share price). If we can buy the shares of the business for a lower price than we believe they are worth, we will do so,” Jeanette Marais, the director of distribution and client service at Allan Gray, says.
“We sell the shares when they reach our estimate of fair value, and look to buy others trading below intrinsic value. This investment philosophy and process has seen us through triumph and turmoil over four decades of investing.”
Allan Gray’s investment philosophy is known in the industry as valuationbased: the manager considers the price of a share, bond or listed property stock relative to its expected future earnings.
Marais says Allan Gray is honoured to have won the Raging Bull Award for South African Management Company of the Year, but winning awards is not the manager’s focus. “We always say that past performance is not necessarily a guide for the future, and investment decisions should be based on thorough research, not only on award winners,” she says.
The Raging Bull Awards for straight performance provide investors with an indication of how well a fund has performed in the past, but you cannot rely solely on past performance when choosing a manager that will deliver out-performance in the future.
The Raging Bull Awards for risk-adjusted returns are based on a longer period – up to five years – and consider a manager’s consistency of returns. You should want to find a fund that consistently produces good returns, because this provides you with some indication that the manager has a sound and repeatable investment philosophy, and didn’t just get lucky.
Risk-adjusted returns help you to identify managers that take calculated risks to deliver good returns consistently over longer periods, as against managers that take risks to bolster returns over the short term. But even taking risk-adjusted returns into account is not a fail-safe way to pick a good fund or manager.
A better acid test is to ask: is it likely that the asset manager will be doing the same thing in 10 years’ time, Marais says. To answer this question, you should consider the incentives the manager offers its key investment professionals, how its business is structured, the stability and experience of the investment team, and evidence of investment conviction, she says.
These types of questions avoid the natural inclination to focus on past performance, whereas it is the future that matters, Marais says.
The winners of the Raging Bull Awards profiled in this edition provide you with a good indication of what the best-performing funds can offer, but finding the fund that is right for you may take more than just learning about its winning strategy.
A good financial adviser can help you to pick the right fund for your needs. This depends on what return you need from your investment, how long your will be invested and your ability to withstand risk.