Is it time for SA’s active managers to reclaim their place in the sun, after years spent watching money flow into passive funds such as exchange traded funds?
The latest performance report from Corion Capital seems to suggest so. According to its new report on 12-monthly fund returns, the difference in performance between SA’s money managers is vast.
The best general equity performer was the PSG SA Equity Fund with a 44.1% return, while the worst was the Global & Local SNN Low Volatility Equity Fund, which returned just 8.9%.
The average return over 12 months was a not-too-shabby 25.2% from general equity funds.
But Corion CEO David Bacher says there has been a turnaround in favour of active managers, particularly those who focused on mid-cap funds generating the bulk of their income from SA.
It means that more than 60% of active funds outperformed the Satrix JSE All Share Index Fund, which was dragged down by former megacaps and star performers such as Naspers.
In the largest unit trust sector, high equity, the average return was 18%, but this varied from 40.5% achieved by the Aylett Balanced Fund to 0.9% for Rezco’s Managed Plus Fund.
Aylett founder Walter Aylett models himself on US industrialist and financier Warren Buffett, down to writing with a fountain pen.
"Shares are evaluated not by a fluctuating ticker or a graph on the screen, but what they represent, a certificate of ownership," says Aylett in typically Buffett-esque prose.
In fact, Buffett’s Berkshire Hathaway is in his top 10 holdings, with Anglo American the only significant JSE megacap holding. Otherwise his portfolio is dominated by second-tier shares such as AECI, Transaction Capital (which is not so small anymore), Spur and Royal Bafokeng Platinum.
PSG Balanced did not have exposure to either Naspers or British American Tobacco, which helped it return 37.2% to investors, just behind the flashier Aylett fund. PSG Asset Management’s largest holding is Discovery, and fund manager Justin Floor says PSG is still excited by the long-term prospects for the group, not least because of its holding in the massive Ping An Health business in China and the continued rollout of the Vitality franchise worldwide.
But the PSG performance has mostly been driven by less glamorous SA mid-caps such as AECI, Hudaco and Imperial Logistics.
"Sentiment began to change when effective vaccines became available globally from November 2020," says Floor.
The fund preferred Glencore to Anglo American and BHP, as it is orientated towards more "modern" metals such as copper and nickel, essential for electrification and telecoms.
And it has been a patient investor in AB InBev, despite the brewer’s lacklustre performance since the merger with SABMiller was completed in 2016.
"They paid far too much for SABMiller, but the debt is coming down steadily as we had hoped," he says.
Bacher says it would not have been a good time to be in income funds, with little or no exposure to equity.
But low equity funds have not fared too badly against their more aggressive high equity peers.
Good stock selection at Kagiso allowed Kagiso Stable to return 24.5% over 12 months, while PSG Stable returned 21.4%.
But Rezco Stable suffered from the poor decisions made at its sister Rezco funds and made a negative return of 1%.
None of the multi-asset income funds lost money, as they are restricted to fixed income and property. The wooden spoon went to Southchester Optimum Income, which hardly lived up to the implicit promise in its name, returning 2.6%. But even the best fund in the sector, the Momentum SA Flexible Fixed Interest Fund, returned only 15.6%.
Yet there has been a significant switch out of low equity funds into income funds. The Prudential Inflation Plus Fund, one of the largest low equity funds, has fallen from R28bn to R20.5bn in assets over the past 18 months, in spite of a strong brand and a credible performance — over the past year it would have outperformed all but one of the income funds with a 15.3% return.
There is certainly some brand confusion when Counterpoint has funds in both the best and worst balanced fund lists.
The Counterpoint Balanced Plus Fund, a poor performer, was run by the original team, with Sam Houlie as chief investment officer. Perhaps not coincidentally, he has left the group. He has been replaced by Old Mutual veteran Brian Pyle, an expert on mid-and small caps.
The good performer is the Counterpoint Managed P&G Fund. Not a reference to soap giant Procter & Gamble, it refers to Payers & Growers, a range of funds from the old Bridge Fund Managers focused primarily on dividend income. Bridge recently merged with Counterpoint, which itself merged with Piet Viljoen’s RECM a few months ago. The Managed P&G Fund usually has about 25 shares, varying in size from Anglo American and FirstRand down to Reunert and AVI.
Who knows how long the complex three-way merger at Counterpoint will take, but in the meantime it might make sense to invest with the Perspective Balanced Fund, where your money can be managed by Viljoen’s protégé Daniel Malan. It has had a very strong 34.4% return over the past 12 months.
Kagiso Balanced stands out among the BEE manager funds with a 27.6% return over one year, putting it fifth in the category.
Fund manager Gavin Wood says that as well as the fund’s large platinum holding, it has been a patient investor in smaller shares such as Omnia, Datatec and Metair, which have paid off more recently. Brait, however, remains its most significant mistake.
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