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, 2019
The Long Beach Flexible Prescient Fund was launched by Cape Town-based boutique manager Long Beach Capital in June 2009. As a multi-asset flexible fund it can invest in any combination of equities, bonds and cash, and may invest up to 30% offshore. Over five years to the end of last year, it was the top-performing fund in its subcategory, returning 11.13% a year, on average, according to ProfileData. This is almost three percentage points higher than its second-placed peer, which achieved 8.21%.
This is the second year in a row that the fund has won this award.
Personal Finance put the following questions to fund manager David Hansford:
Please outline your investment philosophy/strategy.
Long Beach Capital’s investment philosophy is to buy good companies at attractive prices and manage a portfolio of businesses.
A good company has a sustainable business franchise, a long operating track record, sound balance sheet and strong operating cash flows. A company is attractively priced when trading below the present value of the company’s future cash flows.
Our investment process also takes cognisance of the macro-economic environment and how it will impact on companies’ operating environments.
We endeavour to invest responsibly on behalf of our clients, and include broader non-financial environmental, social and governance considerations in our investment process.
We keep our fund portfolios focused, typically holding between 20-30 companies, with new investment ideas considered both for possible return and contribution to risk, which we regard as the probability of a permanent loss of capital.
To what do you attribute your fund's outperformance in 2019?
Consistent application of the fund’s investment philosophy over the 5 years the award covers has allowed us to both identify attractive opportunities and avoid the worst performers. Staying flexible, with a willingness to admit to mistakes and adjust course also helped.
Were there any particular standouts in the portfolio?
PayPal, Alphabet, Naspers and BHP Billiton have been notable contributors to the fund’s performance over the 5 years.
How are you positioning the fund for the year ahead, considering local and global opportunities and risks?
The year has started off with geopolitical events dominating headlines, the coronavirus in China raising fears of a pandemic, tensions in the Middle East and Eskom barely able to keep the lights on! While headlines consistently remind us of what can go wrong and potential negative implications of unfolding political events, monetary conditions continue to be the major driver for asset prices. The central banks in the US, Europe and Japan are all engaged in quantitative easing, which is keeping interest rates at ultra-low levels, and global monetary conditions are constructive for asset prices.
In South Africa, the Reserve Bank continues to backstop the government’s precarious fiscal position with higher than necessary interest rates for current levels of inflation and a weak economic growth outlook. Solutions to South Africa’s economic malaise will need to include structural reforms and fiscal consolidation together with a more supportive monetary policy environment.
Eskom’s difficulties relate to historical political interference, poor management and extensive corruption. The private sector is ready to participate in renewables generation, and the hurdle rate for improvement is very low. South African domestic assets are attractively valued with low expectations and may respond favourably to any structural reforms or policy improvements.
The fund has a balanced exposure to both local and offshore assets. The fund’s offshore holdings continue to be fully invested in global equities with attractive earnings growth prospects, including PayPal, Alphabet and Disney. The fund has exposure to the UK through Capital and Counties Properties, Investec and Quilter. Local holdings are mostly South African companies that are well managed with good cash flows, including Discovery, Mr Price, Adcock Ingram and Standard Bank.