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Boutique manager's multi-asset strategy pays off

Personal Finance

A boutique manager, Centaur Asset Management, has beaten more than 100 peers to claim the position as the top-performing multi-asset high-equity fund over the difficult past three years, thanks to shrewd stock-picking and a higher exposure to fixed-interest investments and listed property shares.

The Centaur BCI Balanced Fund was the leading South African multi-asset high-equity fund over the three years to the end of March, with a return of 12.5 percent a year over this period, according to ProfileData.

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The manager also manages the Centaur BCI Flexible Fund, the top-performing South African multi-asset flexible fund over five and seven years and the second-best performer over three years to the end of March. The fund achieved a return of 19 percent a year over seven years and 12.98 percent over three years. The manager of both funds, Roger Williams, says the Balanced Fund out-performed because it had a high exposure to listed property, bonds and other fixed-interest investments, and because of shrewd stock-picking of South African listed shares.

Williams says the Balanced Fund’s composite benchmark, which is designed to deliver a real (after-inflation) return of four percent a year, comprises: 28 percent FTSE/JSE All Share Index, 28 percent FTSE/JSE Financial and Industrial Index, 30 percent FTSE/JSE All Bond Index, eight percent MSCI World Index and six percent cash.

At the beginning of 2016, the fund was overweight in bonds and listed property and underweight in equities. This paid off, because the fund’s local equity benchmark delivered zero percent for the year, while the fixed interest portion of the benchmark returned 14 percent.

“Centaur Asset Management, however, managed to deliver double-digit equity returns through shrewd stock-picking. Individual stock picks, such as mining company Merafe Resources and pulp and paper company Sappi, performed particularly well for the fund.”

Centaur also benefited from increasing its exposure to resource shares at the beginning of 2016, when the resource sector reached a low, Williams says.

Although Centaur’s investment decisions have paid off for the fund, Williams says the past three years have been difficult time for fund managers, because there have been numerous risks to investing in South African bonds and equities.

At the beginning of last year, following the firing of former finance minister Nhlanhla Nene, the value of the rand relative to the major currencies was falling, inflation was expected to increase, and the economy was not looking good. Many funds therefore chose to have higher weightings in cash, particularly over the past 15 months, he says.

“The investment outlook is difficult, and fund managers are likely to continue to struggle to deliver anything but low real returns from local asset classes. Talk of radical economic transformation and the nationalisation of banks and agricultural land has businesses questioning their future and is retarding investment within industries,” Williams says.

“We are going into unchartered waters. The economic framework is in flux and no one is certain where we are going. In this environment, only a few local companies, such as listed education companies and disruptors such as Capitec, are growing their earnings in real terms.”

The total expense ratio on the Balanced Fund is 2.2 percent.

Williams says that, because the Balanced Fund is “nimbler” and can invest in a broad range of JSE-listed shares, Centaur believes the fund can out-perform its benchmark after-fees and deliver value to investors despite the relatively high expense ratio.

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