Old Mutual Global Equity Fund
Raging Bull Award for the Best South African-domiciled Global Equity Fund on straight performance over three years to the end of December 2015
In managing Old Mutual’s Global Equity Fund, Ian Heslop, who heads the global equities team at London-based Old Mutual Global Investors, and his fellow managers, Amadeo Alentorn and Mike Servent, take a pragmatic, bottom-up approach, which, judging by the fund’s outstanding track record, pays off again and again. This is the fourth year in a row that the fund has won the Raging Bull Award in its category.
The fund does not stray too far from the make-up of the MSCI World Index and yet it has achieved returns of 40.98 percent a year in rand terms, on average, for the three years to the end of 2015, well above the index’s 31.6 percent.
So what has the team been doing right? One thing Heslop and his team don’t do is make investment calls based on macro-economic forecasts. “Forecasting macro is difficult, as is forecasting the impact of macro on the market itself – we have seen a lot of good news being bad for equity markets and vice versa. Hence we don’t make big macro calls – what Chinese gross domestic product is going to be and when the US will raise rates, for example.
“We are much more interested in what the market is doing. Even though we don’t take big macro bets away from the index, we can add value by picking those stocks that have the right characteristics for the current environment, and overweighting them relative to the index,” Heslop says.
The team uses five strategies to identify shares that are mispriced – in other words, those companies whose share prices are not a true reflection of their inherent value. Which strategy prevails at any point is determined by empirical information. The strategies are:
* Dynamic valuation: identifies shares that are undervalued, but where the companies have strong balance sheets.
* Market dynamics: identifies shares that will benefit from strong medium- or short-term economic trends, but whose prices do not reflect the expected benefits.
* Sustainable growth: identifies companies that have strong growth characteristics, but whose shares are mispriced for various reasons.
* Analyst sentiment: identifies shares that analysts believe are likely to do well, where that information is not yet reflected in the shares’ prices.
* Company management: identifies companies with strong management teams that are expected to grow company profits.
Heslop says that, in 2015, given the volatility of the equity markets during the year, this multi-faceted approach was key to managing risk.
“Our approach allows a smoother ride than if we concentrated on an individual theme, such as value, growth or momentum. Good returns were seen due to analyst sentiment. We also had some good returns due to market dynamics and the trending of stock and industry prices. Pleasingly, our dynamic valuation strategy performed well in a year where value [investing] has been very negative,” he says.
On its exposure to the resources sector, Heslop says: “Our sector positions only ever add around 10 percent of our total returns and, as we have 10 sectors, our mining and resources exposures aren’t too relevant.
“What we have been able to do this year is identify the correct types of stocks in a very changeable environment. The correct style approach, particularly in identifying the fact that value was likely to under-perform this year and avoiding it, has led to the level of out-performance we have achieved.”