INVESTEC MANAGED FUND
Special Raging Bull Award for the Best South African Multi-asset Equity Fund on a risk-adjusted basis over 21 years to December 31, 2016
Of the 580 or so unit trust funds that now constitute the South African multi-asset category in the Association for Savings & Investment South Africa’s classification system, only about eight have been around for 21 years.
Of this handful of funds that have stood the test of time – and benefited handsomely from the experience gained – the Investec Managed Fund reigns supreme when it comes to risk-adjusted performance, having delivered an annualised return of 13.67 percent over the 21 years. A couple of its competitors may have produced a slightly higher return, but it would have been achieved at the cost of higher risk for investors.
The fund won a special Raging Bull Award celebrating the 21st anniversary of the awards – for best risk-adjusted performance over 21 years to the end of 2016.
According to Investec, and bearing in mind that the fund cannot invest more than 75 percent of its portfolio in equities, if you had invested R1 000 21 years ago, on January 1, 1996, you would now have R19 521. Investing in the FTSE/JSE All Share Index, says Investec, would have delivered R14 751. Both the fund and the index have far out-performed inflation: what you could buy for R1 000 in 1996 would cost you about R3 395 today.
The Investec Managed Fund was launched in 1994. Its manager, Gail Daniel, who has been with the fund for 18 years, says that, although much has changed over the fund’s history, much has stayed the same. She says share picking has always been tilted towards growth – buying into companies that are revising their profits upwards – but share valuations (how a company’s share price compares with its projected profits) have also played a role, as has the larger economic picture.
“Our philosophy has always been to invest in growth shares, or to buy shares with positive earnings revisions and sell those with negative revisions. We are valuation-cognisant, but not obsessed: we prefer cheap shares with positive earnings revisions, although ‘cheap’ is subjective and open to interpretation. We have always believed that macro-economics matter.”
Daniel says the fund has been flexible to the changing drivers of the stock market over time, although “markets definitely have fads, which we are usually quite cynical about”.
Stock turnover is high, she says. “Ultimately, it is about how the shares in the portfolio are combined that produces good risk-adjusted returns.”
In the world of investing, there’s little that can trump experience, and Daniel and her colleagues have experience in bucket-loads, including having weathered at least two major market crashes.
“Market crashes are very valuable experiences,” Daniel says. “Over time, we have become slightly more risk-averse and have paid more attention to the liquidity of a share. Over 90 percent of the portfolio can be liquidated in two days. Where two stocks have similar earnings revisions, we will buy the more liquid one. Liquidity reduces risk without compromising on returns.”
The fund’s equity exposure is highly variable, Daniel says. Over time, it has varied from the maximum 75 percent to about 40 percent early last year. “We are slightly more bullish on equities now and the weighting is in the mid-50-percent range.”
Daniel says the Investec Managed Fund has performed well through the uncertainty and volatility of the past two years.
“We did very well out of gold shares towards the end of 2015 and early 2016. Then we sold those and benefited from the run in retail shares towards the end of last year. We were also underweight in rand-hedge stocks (shares in companies that have a large offshore component), which did not do well in the second half of 2016, and we had minimal rand-pound hedges at the time of the Brexit vote in the United Kingdom. We were also fortunate to be underweight in bonds when Nenegate broke.”
Political risk, both locally and abroad, is more difficult to manage than it used to be, says Daniel. And looking ahead, she sees risks aplenty. “I think the local market underestimates the risk in Eastern Europe. Countries like Poland have been huge beneficiaries of the European Union without giving much in return. It is also going to be very interesting to watch how the French election plays out.
“Meanwhile, Donald Trump is going to give stock-pickers like us a lot of work to do. China is too debt laden for comfort,” she says.
“Locally, political risk is high and probably underplayed at the moment. However, market returns have been anaemic for a while now and companies with positive earnings revisions should do well. Mondi is starting to look a bit better in this regard.
“Valuations are getting more attractive. There are always opportunities in the market …”