All smiles for top manager and its investors

Coronation this week won the Raging Bull Award for the Management Company of the Year for the fifth time in the history of the awards, based on the performance of 17 of its funds under management for periods to the end of 2013.

It achieved an average PlexCrown Ratings of 4.576 PlexCrowns – out of a maximum five PlexCrowns – putting it in the top position among the managers of South African (rand denominated) funds.

Throughout the years, Coronation has stuck to its investment philosophy, consistently telling its clients that it is a long-term investor that invests when valuations (price relative to fundamental value) are attractive. That means it identifies shares, bonds and other assets that are trading at a discount to the long-term value of the business, known as fair value.

Coronation’s long-term approach also means that it considers the earnings it can get for you from shares or other assets throughout the economic cycle – what it calls normalised earnings – rather than focusing only on forecasts for the next year or two. Consequently, Coronation is referred to as a bottom-up manager: it selects shares based on their valuations and on the fundamentals of the company.

Six of Coronation’s 17 funds that qualify for PlexCrown Ratings, the Industrial Fund, the Strategic Income Fund (in the South African multi-asset income sub-category), the Balanced Defensive Fund (South African multi-asset low equity), the Balanced Plus Fund (South African multi-asset flexible), the Property Equity Fund (South African real estate general) and the Optimum Growth Fund (worldwide multi-asset flexible) achieved the highest rating of five PlexCrowns each, which means they consistently achieved the best returns on a risk-adjusted basis over the five-year period, according to the PlexCrown ratings.

The good returns can be seen in these funds’ straight-performance results:

u The Industrial Fund was the second-best performer in the South African equity industrial funds sub-category over five years to the end of December last year with a average annual return of 28.44 percent a year (according to Profile Data).

u The Strategic Income Fund was the third-best performer over five years (9.77 percent a year, on average) in the South African multi-asset income sub-category and the best performer over three years (9.8 percent a year on average).

u The Balanced Defensive Fund achieved the second-highest return over five years (13.59 percent a year, on average) in the South African multi-asset low-equity sub-category.

u The Balanced Plus Fund was the top performer over five years (17.98 percent a year on average) in the South African multi-asset high-equity sub-category.

u The Property Equity Fund was the top performer over five years (19.19 percent a year on average) in the South African real estate general sub-category.

u The Optimum Growth Fund was the worldwide multi-asset flexible sub-category’s top performer over three years (29.92 percent a year, on average) and the second-best performer over five years (20.6 percent a year, one average).

Eight of Coronation’s funds achieved the second-highest rating of four PlexCrowns each and three funds obtained ratings of three PlexCrowns each.

Allan Gray was runner-up to Coronation as leading domestic manager, with 4.147 PlexCrowns.

Allan Gray has seven funds that are rated in the PlexCrown Ratings. Its Bond Fund and Orbis Global Equity Feeder Fund obtained five PlexCrowns each for their risk-adjusted performance over five years to the end of December.

The Bond Fund was the top performer on straight performance in the South African interest-bearing variable term sub-category (for bond funds) over five years to the end of last year with an annual average return of 8.86 percent.

The Orbis Global Equity Feeder Fund was the top-performing fund in the rand-denominated global general equity sub-category over one-year with a return of 78.19 percent and over seven years with an annual average return of 13.54 percent.

Two of Allan Gray’s funds obtained four PlexCrowns, two three PlexCrowns and one, the Optimal Fund in the multi-asset low equity sub-category, obtained the lowest rating of one PlexCrown.

Nedgroup Investments was placed third among its peer domestic fund managers with an overall average rating of 4.026 PlexCrowns.

Nedgroup has 15 funds that qualify for PlexCrown ratings. Four of them obtained the highest rating of five PlexCrowns each: the Financials Fund, the Entrepreneur Fund (South African equity mid- and smaller-cap sub-category), the Core Income Fund (interest-bearing short-term sub-category) and the Stable Fund (SA multi-asset low equity sub-category).

On straight performance, the Financials Fund was first over five years to the end of December in the South African equity financial sub-category with an average annual return of 26.54 percent, while the Entrepreneur Fund was first in its sub-category over three (24.8 percent a year), five (25.19 percent a year), seven (14.67 percent a year), 10 years (23.47 percent a year) and 15 years (19.85 percent a year).

The Core Income Fund was 12th in its income fund sub-category over five years with an average annual return of 6.03 percent for this period.

The Stable Fund was ranked 8th in the multi-asset low equity sub-category with an annual average return of 12.4 percent a year.

Three of Nedgroup Investments’ funds obtained the second-highest score of four PlexCrowns each and the rest of the funds obtained three PlexCrowns except for one, which obtained only two PlexCrowns.

Foord was the leading investment house in the broad South African equity and real estate category and shared the lead with Ashburton and Rezco in the broad South African multi-asset non-income category. Foord does not meet the requirements for an overall rating and is therefore not ranked in the domestic management company rankings.

PLEXCROWN METHODOLOGY

The PlexCrown Fund Ratings, which form the basis of the Raging Bull Awards, are in line with guidelines set by the Association for Savings & Investment SA and criteria set by PlexCrown Fund Ratings:

* Unclassified funds are not rated.

* Gold and precious metal funds are excluded.

* A sub-category is rated only if it consists of at least five funds.

* Only funds with a performance history of at least five years qualify for a rating.

* Pure index-tracking funds are excluded.

* Funds in the South African equity general and large cap sub-categories that track indices where investment methodologies are involved are rated with other funds in their sub-category.

* Funds in the South African interest-bearing money market sub-category are not rated.

* The Financial Services Board-approved global asset allocation prudential and flexible sub-categories are rated in the broader global asset allocation category.

* Where a fund has more than one class, the returns of the higher-cost A-class fund are used.

Funds in non-multi-asset and interest-bearing variable-term sub-categories are ranked on a percentile basis over five- and three-year periods according to the Sharpe Ratio, Alpha, Treynor Ratio, Sortino Ratio and Omega. Funds in the multi-asset sub-categories (excluding multi-asset income) are ranked over five- and three-year periods according to the Sharpe Ratio, Alpha, Sortino Ratio and Omega.

Funds in the multi-asset income and interest-bearing short-term sub-categories are ranked over five- and three-year periods according to the Sharpe Ratio, Alpha and Sortino Ratio.

The funds’ percentile rankings per measure over three and five years are time-weighted by applying weights of 40 percent and 60 percent. The total percentile ranking of funds in the non-multi-asset and interest-bearing variable-term sub-categories are then calculated by applying a weight of 20 percent to each fund’s percentile rankings per measure.

In the multi-asset sub-categories (excluding multi-asset income), a weighting of 25 percent is given to the four performance measures: the Sharpe Ratio, the Sortino Ratio, Alpha and Omega. In the multi-asset income and interest-bearing short-term sub-categories, a weighting of 33.33 percent is given to the three performance measures: the Sharpe Ratio, the Sortino Ratio and Alpha.

The fund with the highest weighted percentile ranking is therefore the winner in its sub-category.

South African companies

PlexCrown Fund Ratings assigns each qualifying fund a score based on its performance over three to five different measures (depending on the sub-category) of risk-adjusted performance over three and five years.

The size of a rated fund of a company relative to the combined size of all the rated funds in that company’s fold in that fund’s broad asset class is used to calculate the said fund’s effective weight in the asset class or main category. The individual fund’s effective weight is then applied to the fund’s rating. The company’s rating for the asset class or category is then calculated using the weighted ratings of the company’s funds in a specific asset class or major category.

Fixed weights based on overall industry sizes and skill are then applied to each of the four broad unit trust sectors or asset classes, where the South African equity and real estate’ weight is set at 25 percent, South African Interest-bearing (including multi-asset income) at 25 percent, South African multi-asset (excluding multi-asset income) at 35 percent, and rand-denominated global |and worldwide at 15 percent.

Offshore companies

The methodology to rate FSB-approved offshore funds has been changed: returns are now measured in United States dollars, not rands, while the hurdle rate is now the US three-month Treasury Bill rate instead of the South African three-month BA rate.

To qualify for an overall rating, a management company must have at least one fund in global equity general or global asset allocation (flexible and prudential combined) and at least three rated funds.

Local management company rankings according to average PlexCrowns to December 31, 2103

1. Coronation 4.576

2. Allan Gray 4.147

3. Nedgroup Investments 4.026

4. PSG 3.923

5. Prudential 3.552

6. FirstGlobal* 3.500

7. Investment Solutions 3.388

8. Marriott 3.387

9. Sanlam Investment Management 3.257

10. Oasis 3.232

11. Absa 3.163