LONG BEACH FLEXIBLE PRESCIENT FUND
Raging Bull Award for the Best South African Multi-asset Flexible Fund on a Risk-adjusted Basis over five years to December 31, 2018
The Long Beach Flexible Prescient Fund was launched by boutique manager Long Beach Capital in June 2009 and, according to its December 2018 minimum disclosure document, holds more than R187 million in assets. As a multi-asset flexible fund it can invest in any combination of equities, bonds and cash, and may invest up to 30% offshore. Its benchmark is made up of 75% of the JSE/FTSE Shareholder-Weighted All Share Index and 25% cash.
Over five years to December 31, 2018, it was the top-performing fund in its subcategory, returning 11.73% a year, on average, according to ProfileData.
Personal Finance put the following questions to fund manager David Hansford:
Please outline your company's investment philosophy/strategy in relation to this fund.
Our philosophy is to buy good companies at attractive prices and manage a portfolio of businesses.
A good company is one which is regarded as having a sustainable business franchise, a long operating track record, sound balance sheet and strong operating cash flows. A company is regarded as being attractively priced when trading below the present value of the company’s future cash flows. The investment process also takes cognisance of the macro-economic environment and how it will affect the companies' operating environments.
Long Beach Capital's fund portfolios are kept focused, typically holding between 18-25 companies, and investment ideas are considered both for possible return and their contribution to risk in the portfolios. Equities are the best placed asset class to provide real long-term returns on capital and our portfolios are equity-centric for this reason.
The skipper of a racing yacht will trim the sails and make adjustments to his heading to take advantage of wind shifts or swells to increase speed and protect a lead. Our portfolios are actively managed in this spirit, using subtle trading tactics within the overall investment strategy to manage risk and enhance returns.
Buying good quality companies based on valuation and cash flows, while maintaining a flexible approach, are the best risk management tools in an uncertain investment environment.
To what do you attribute the fund's relative outperformance in 2018?
In absolute terms the fund experienced a challenging year, with a return of 0.91%. Relative to the fund’s benchmark (–6.96%) and the broader FTSE/JSE All Share Index (–8.53%), this was an acceptable outcome. The biggest contributor was being fortunate to largely avoid most of the companies that experienced significant negative performances for the year. This was due to a willingness to admit to mistakes and exit from holdings where the investment thesis was shown to be incorrect, and in so doing accept a modest loss versus the significant loss that would have resulted from being inflexible in outlook.
The year required portfolio managers be much more flexible than in recent years and respond appropriately to a changing investment environment.
How are you positioning your fund for the year ahead?
I will look to continue to consistently apply our investment philosophy of investing in good companies at attractive prices, with a due awareness for the elevated risks that currently exist in markets, including trade wars, a slowing global economy, and an upcoming election in South Africa together with a weak domestic economy and ongoing policy uncertainty.