Raging Bull Award for the Best South African-domiciled Global Equity General Fund on straight performance over three years to December 31, 2019
This is the second year in a row that BlueAlpha Investment Management’s Global Equity Fund has won the Raging Bull Award for performance in the sub-category for rand-denominated global equity funds.
The Global Equity Fund returned 16.15% on average a year over three years to the end of December 2019, according to ProfileData. The annual average return of the 51 funds in the global equity general sub-category with a performance history of three years was 11.04%. The fund’s benchmark is 80% of the MSCI World Index and 20% of US Libor rate calculated over a rolling one-year period. The benchmark return over three years was 11.4% a year.
The IP Global Momentum Equity Fund was the top performer in this sub-category over the three years to the end of December last year (annual average return of 18.69%), but the fund was disqualified, because it changed sub-categories during last year.
The fund, which was launched in 2014, has R673 million in assets under management, according to its December 2019 minimum disclosure document.
The Global Equity Fund has been managed by Richard Pitt since it was launched in 2014, while Walter Jacobs has co-managed the fund since June 2017.
What is BlueAlpha’s investment philosophy when it comes to managing this fund?
BlueAlpha’s investment philosophy and process are centred on identifying companies that have a track record of long-run value creation. We focus on businesses that generate high returns on invested capital, which translates into real economic profit (as opposed to accounting profit). These companies typically generate strong cash flows, which they can reinvest for growth at high rates of return. We believe that long-term performance is more reliably sought by investing in the right type of companies and allowing the underlying businesses to generate the returns, as opposed to relying on a portfolio manager’s ability to time either the market or cyclical rotation within industries and sectors.
To what factors do you attribute the Global Equity Fund’s outperformance over the past three years?
Performance has been driven in large part by the portfolio’s holdings in three sectors: IT, consumer discretionary and consumer services. The companies within these sectors have been identified through our process as potential winners for our investors, and we are of the opinion that the investment case remains intact for 2020.
Over the past year, Blackstone (dollar return of 96%), Apple (88%) and Mastercard (59%) contributed the most to returns. Over three years, the same companies were also strong contributors to performance relative to the MSCI World Index. All three companies benefit from scale effect, have high returns due to monopolistic type positioning in their area of business and have a sound long-term runway for growth. As the leading alternative asset manager, Blackstone continues to entrench itself with scale as investors need to allocate in size. Apple has direct relationships with an ecosystem of the wealthiest 900 million consumers in the world through which it can sell a growing range of services and products. Mastercard is a global leader in payment solutions and is a direct play on secular trends of ecommerce, mobile payments and a switch away from cash payments in emerging markets.
What opportunities and challenges will the fund face over the coming year, and, following from this, how will you be positioning the fund?
The concerns today are that the market has run ahead of the fundamentals and is therefore quite expensive. However, price action has historically been a good indicator of forward earnings – so the market is telling us a rebound in fundamentals lies ahead. While we expect shifts in sentiment through the year, with associated rallies and declines in the broader market, our main concern is to ensure that we keep looking for and investing in companies that generate real economic profits and have opportunity to grow. If we manage that, we are confident that the portfolio’s companies will generate good returns over the medium term. In line with our investment philosophy, we have made few fundamental changes to the portfolio for 2020. We have tweaked exposure around the edges. We believe the fintech payments ecosystem provides exciting opportunities for investors with technology and consumer preferences evolving rapidly in this space. To this end, we have added PayPal holdings to the portfolio to complement our holdings in Apple and Microsoft.