INVESTEC MANAGED FUND
Special Raging Bull Award for the Best South African Multi-asset Equity Fund on a risk-adjusted basis over 20 years to December 31, 2015
Many investors chase the top-performing funds or the latest investment fad, but sticking with a good multi-asset fund that performs well consistently is likely to ensure that slow and steady wins the race.
The Investec Managed Fund this week won a special Raging Bull Award to celebrate the 20th anniversary of the awards – the award for best risk-adjusted performance over 20 years to the end of December last year.
The fund has returned 14.19 percent a year over the past 20 years, beating the average inflation rate for the period, 5.94 percent a year, by an average of more than eight percentage points a year. A lump-sum investment of R1 000 in the fund 20 years ago would have grown by more than 14 times to R14 208.
Gail Daniel, who has managed the Investec Managed Fund for 17 of the past 20 years, says the fund’s good returns are a result of the financial markets having had a great two decades. Although there have been crashes, there have not been any “grinding bear markets”, she says.
Investec actively manages the fund’s asset allocation, which has changed significantly over the past 20 years, Daniel says.
The equity allocation has at times reached the maximum permitted for funds in the multi-asset high-equity sub-category, 75 percent, although it has been as low as 45 percent.
Over the past 20 years, the fund’s exposure to bonds has been between seven percent and 30 percent, its listed property exposure between two percent and five percent, and its investments in gold have been between zero and nine percent.
The fund’s exposure to offshore markets is close to the permitted maximum of 25 percent in both developed-market equities and bonds.
South African funds have been permitted to increase their offshore exposure over the past 20 years, from 15 percent to 20 percent and then to 25 percent.
The equity portion of the portfolio follows the same investment style as the Investec Equity Fund, investing in shares whose profits or earnings are being revised upwards and are trading at what Investec considers to be reasonable value.
Daniel says she likes to buy large liquid shares, because this allows her to adapt to changes in the markets.
She says although the fund’s investment style is to invest in the shares of companies with upward earnings revisions, she is also realistic and will not doggedly stick with an investment until it proves to be the right call.
She says her investment calls are influenced by how the shares work together, and in this regard she is guided by her experience, rather than any investment rules.
One of the broad asset allocation calls she made was to be overweight relative to the FTSE/JSE All Share Index in resource shares in the five years leading up to 2008. This, Daniel says, enabled the Managed Fund to benefit from the bull market in resource shares that was fuelled by economic growth and infrastructure spending in China from 2000.
Currently, the equity exposure is about 50 percent, and about 30 percent of the fund is in local and foreign cash.
Daniel says she is expecting a very tough year ahead for equities, although valuations (share prices relative to profits or earnings) are improving from their expensive levels. Certain pockets of shares may do well, but there will not be any easy pickings, she says.
The fund is overweight in non-resource, rand-hedge shares (shares of companies that earn significant offshore earnings) and underweight in stocks exposed to the commodity cycle or the domestic economy.
However, she says Investec is now more inclined to buy resource than bank stocks. The rand is so weak that earnings are starting to show signs of reaching the bottom of their cycle and are likely to improve, she says.
Daniel says that, for the equity portfolio to earn better returns, there needs to be good economic growth in the United States, the US Federal Reserve needs to raise interest rates slowly and China’s equity markets need to be more stable.
Daniel says South African listed property is overplayed, and share prices are too high given the oversupply of shops and offices. She prefers local bonds to property.