This article was first published in the 2nd quarter 2014 edition of Personal Finance magazine.
The tussle for Management Company of the Year, and the coveted Raging Bull Award that goes with the title, may seem like a never-ending contest between Coronation Fund Managers, Allan Gray and Nedgroup Investments. 2014 is the third year in a row that these asset management companies have featured in the top three positions at the Raging Bull Awards.
Coronation claimed the Raging Bull Award for the Management Company of the Year for a record-breaking fifth time at the ceremony in Cape Town at the end of January 2014. Allan Gray was in second place and Nedgroup Investments was third.
The Raging Bull Awards, which are now in their 18th year, are co-hosted by Personal Finance, ProfileData and PlexCrown Fund Ratings. ProfileData and PlexCrown Fund Ratings provide the data and perform the calculations to determine who wins what. The leading fund managers are determined on the basis of their average PlexCrown ratings for all their qualifying funds over five years.
The PlexCrown Fund Ratings, which assign a single rating to funds based on four or five measures of risk-adjusted performance, were introduced for determining the leading fund managers 10 years ago, when the 2005 awards were made (based on performance to the end of 2004). Since then, Coronation has won the Raging Bull Award for the top management company four times – in 2005, 2006, 2013 and again in 2014 – in each case for performance to the end of the previous year. Coronation also won in 2003. It was in second place in 2007 but disappeared from the top three until it emerged as number one in 2013.
Coronation’s absence from the rankings in 2004 was attributed to its international fund of funds investing in a hedge fund at a time when the Financial Services Board was insisting that unit trusts stop investing in hedge funds. The need to restructure the fund’s portfolio and liquidity problems in one of the underlying funds led to significant under-performance, Ryk de Klerk, director of PlexCrown Fund Ratings says.
Between 2008 and 2012, Coronation’s management company ratings were affected by the investment strategy it adopted late in the second half of 2007 and the first half of 2008. Their views about where the markets were going ultimately proved correct, but they acted on them too early, he says.
Coronation has consistently collected Raging Bull Awards and certificates for its funds’ performance over the years. This year, in addition to winning the Raging Bull Award for the best South African interest-bearing fund for its Strategic Income Fund, it collected five certificates, for its Strategic Income Fund (best multi-asset income fund), Global Capital Plus (ZAR) Fund (best global multi-asset low equity fund), Global Managed (ZAR) Feeder Fund (best global multi-asset high equity fund), Optimum Growth Fund (best worldwide multi-asset flexible fund) and Global Managed Fund (best offshore global asset allocation fund).
Last year, in addition to the Raging Bull Award for the top fund manager, Coronation won an award for its Balanced Defensive Fund (best domestic asset allocation fund), while in 2012 it won an award for its Global Emerging Markets Fund (best offshore global equity fund).
Coronation is a long-term investor that invests when valuations (price relative to fundamental value) are attractive. This means it identifies shares, bonds and other assets that are trading at a discount to the long-term value of the business, known as fair value. It is known as a bottom-up manager, because it selects shares based on their valuations and on the fundamentals of the company, rather than because the share is in a particular sector or industry, or would be affected by certain economic factors.
Four in a row
Between 2009 and 2012, Allan Gray won the Raging Bull Award for the top domestic manager. Allan Gray first qualified for inclusion in the management company rankings in 2009 and promptly proceeded to walk off with the top award four times in a row. However, Allan Gray has been in second place for the past two years.
Allan Gray’s funds have received a number of awards and certificates for good performance over the past 10 years. The award-winning funds were its Bond Fund (best fixed-interest fund in 2012), Orbis Global Equity Feeder Fund (best South African-domiciled foreign equity fund in 2009, 2010 and 2011), Balanced Fund (best domestic asset allocation prudential fund in 2005 and 2010), Stable Fund (best asset allocation prudential fund in 2009) and Equity Fund (best broad-based domestic equity fund in 2008).
This year, the risk-adjusted performance of its Bond Fund earned it the certificate for the best South African interest-bearing variable term fund.
Allan Gray is also a long-term, bottom-up, valuation-based manager, but it is more conservative than Coronation, De Klerk says.
Allan Gray has a core of solid companies in its fold and is relatively unmoved by market movements, while Coronation is more sensitive on market- and equity-specific valuations and is not scared to take protection against possible adverse market movements, he says.
Nedgroup has been among the top three management companies five times over the past 10 years, but it has been unable to climb higher than second place – in 2011 and 2012.
Nedgroup has a number of leading specialist equity funds in its stable, but its average ratings for the management of equity funds have been diluted recently by the low scores of its broad-based equity funds, such as the Rainmaker Fund, Growth Fund, Value Fund and Quants Core Equity Fund.
This year, Nedgroup scooped four certificates for top outright performance over three years to the end of last year by its Financials Fund, Mining & Resources Fund, Entrepreneur Fund and Property Fund. Its Core Income Fund received the certificate for top risk-adjusted performance over five years.
Over the past 10 years, Nedgroup has collected numerous awards and certificates for its Bond Fund (best domestic fixed-interest fund in 2011) and Rainmaker Fund (best domestic equity general fund in 2006).
Nedgroup manages its funds on a “best-of-breed basis”, outsourcing the management of the funds to boutique and other specialist managers.
De Klerk says that Nedgroup’s outsourcing policy results in investment strategies that are inclined to differ significantly, resulting in returns and risks that vary, particularly when it comes to equities, and this has prevented Nedgroup from becoming the management company of the year.
Allan Gray and Coronation, on the other hand, implement their equity strategies across all their funds with equity exposure, some more aggressively than others, depending on a fund’s investment objectives. The same applies to their fixed-interest and offshore exposures.
The leading managers are determined in the following way. Each qualifying fund earns a PlexCrown Fund Rating. The individual fund ratings are used to determine an average rating in four broad unit trust sectors: South African equity and real estate, South African interest-bearing (including multi-asset income funds), South African multi-asset (excluding multi-asset income funds) and rand-denominated global and worldwide. In calculating the average rating in each sector, PlexCrown Fund Ratings takes into account the size of each fund relative to a manager’s total assets under management in that sector.
The average scores in each broad sector are combined, with the South African equity and real estate sector given a weighting of 25 percent, the South African interest-bearing (including multi-asset income) a weighting of 25 percent, the South African multi-asset (excluding multi-asset income) a weighting of 35 percent, and rand-denominated global and worldwide a weighting of 15 percent.
The graphs (link at the end of the article) show the average scores for each of the leading three managers obtained in the four broad sectors, the average score for South African funds and the overall average score.
Oasis and Stanlib were named the Manage-ment Company of the Year in the two years – 2007 and 2008 respectively – of the past 10 when neither Coronation nor Allan Gray claimed the title. However, these two managers regularly win awards and certificates.
Since 2003, Oasis has received awards for its Balanced, Global Equity, Crescent Equity and Oasis Crescent International Feeder funds.
This year, Oasis collected three certificates for the risk-adjusted performance of two of its funds: the Property Equity Fund (best South African real estate fund) and the Crescent Global Property Equity Fund (best offshore global real estate general fund). Oasis’s offshore funds have also performed strongly recently, and the company was the second-best manager of offshore funds in 2013.
Stanlib is often the recipient of awards or certificates for its fixed-income and foreign funds. This year, its funds collected three certificates for top outright performance over three years: its Bond Fund (best South African interest-bearing variable term fund), Global Property Feeder Fund (best global real estate fund) its Global Bond Fund (best offshore global fixed-interest bond fund). The Global Bond Fund also received a certificate for risk-adjusted performance over five years.
Stanlib’s fixed-interest team has collected Raging Bull Awards for its Bond Fund (best fixed-interest fund in 2013, 2006 and 2005), Cash Plus Fund (best fixed-interest fund in 2009) and Income Fund (best fixed-interest fund in 2009).
Stanlib’s foreign team collected an award for its European Fund of Funds (best South African domiciled foreign fund in 2007).
Prudential Portfolio Managers has also featured among the top three managers four times over the past four years, three times in second place (in 2008, 2009 and 2010) and once in third (in 2011).
At the end of last year, Prudential was fifth in the rankings of domestic management companies.
At the Raging Bull Awards ceremony this year, Prudential received a certificate for its Inflation Plus Fund (top outright performance in the South African multi-asset low equity sub-category over three years) and Global High Yield Bond Fund of Funds (best South African-domiciled global interest-bearing variable-term fund).
Prudential has received Raging Bull Awards for its Dividend Maximiser Fund (best broad-based domestic equity fund in 2007 and 2009) and its Equity Fund (best general equity fund on a risk-adjusted basis in 2008 and 2009). Prudential’s funds have also collected numerous certificates over the past 10 years.
South African managers should look out for PSG, which was fourth in the management company rankings for the quarter to the end of December 2013, with only a narrow margin separating its average score from that of Nedgroup Investments.
PSG received certificates and awards at the Raging Bull Awards over the past 10 years. In particular, its Equity Fund (best broad-based equity fund in 2006 and 2012) and its Flexible Fund (best domestic asset allocation flexible fund in 2011 and 2012) have collected awards.
Among the offshore management companies, there has been a far more varied field of players over the past 10 years. This may be a reflection of the difficulties that offshore managers have faced in registering their funds in South Africa.
Many companies deregistered after managers of European funds that comply with the Undertakings for Collective Investment in Transferable Securities (Ucits 3) were granted powers to invest in a wider range of instruments, which resulted in them falling foul of South Africa’s conservative fund regulations.
For the second year in a row, Lloyds won the Raging Bull Award for Offshore Management Company of the Year. It also received a Raging Bull Award for its Multi Strategy Limited Growth Fund, the best foreign-domiciled global asset allocation fund on a risk-adjusted basis.
Homegrown manager Investec has won the most awards for the offshore manager of year – three in all, in 2007, 2011 and 2012.
Investec is a regular recipient of Raging Bull Awards. It collected awards for its GSF Global Strategic Managed Fund (best offshore global asset allocation fund in 2012 and 2013), Opportunity Fund (best domestic asset allocation flexible fund in 2009 and 2010), GSF Global Strategic Equity Fund (best offshore global equity fund in 2007), Equity Fund (special award for the top-performing broad-based domestic equity fund over 10 years in 2006) and GSF Global Strategic Value Fund (best offshore global equity fund in 2005).
RAGING BULL AWARDS QUICK GUIDE
Ten Raging Bull Awards are made each year. The most coveted award, for the South African Management Company of the Year, is made on the basis of an average PlexCrown Fund Rating that measures risk-adjusted returns and consistency of performance across all of a manager’s qualifying funds for periods up to five years. Certificates are awarded to the runners-up in second and third place in the domestic management company rankings.
There is a Raging Bull Award for the Offshore Management Company of the Year. The award is made on the basis of a manager’s average PlexCrown Fund Rating for the management of foreign-currency funds domiciled outside of South Africa but which the Financial Services Board (FSB) has approved as suitable for South African investors.
Four other awards are made on the basis of outright (straight) performance over three years in the South African equity general sector, the South African interest-bearing sector (the interest-bearing short-term and variable-term sub-categories and the multi-asset income sub-category), the (rand-denominated) global equity general sector and the offshore global equity sector (foreign-domiciled funds approved by the FSB).
Four awards are made on the basis of risk-adjusted returns as measured by the PlexCrown ratings over periods up to five years. These awards are for the best funds in the South African equity general sub-category, the South African multi-asset flexible sub-category, the broader South African multi-asset category (low, medium or high equity sub-categories) and the offshore global asset allocation sector.