The Investment Den | PortfolioMetrix
1 week ago
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With advisors and investors facing a bewildering choice from over 1200 investment funds. We ask South Africa's top fund allocators to share their top tips and ideas to find the winners. Welcome to investment den. Mhm. Welcome to the Investment Den with me, Joanne bone. Um Today I'm joined by reflect Taylor head implemented consulting glacier invest. Welcome, horrific. Thank you very much, Joanne, lovely to have you back on the show and we really enjoyed your insights last time. So the floor is yours, what is your two best investment ideas? Yeah, So I'll talk about one locally and, and one that we have off shore and at the moment the one that I'm going to be talking about locally is uh, the amplified strategic income find. Um It's managed by ERIC now in conjunction with the number Tavana whose co portfolio manager, Um you know, their business has been running for about eight or nine years. Um, and you know, Eric Newell is a seasoned investment professional, uh, has about 20 odd years experience working in investment bank and essentially moved from the bank to a hedge fund um consequently at Atlantic, and then decided to start his own business. Um This is actually one of the more sort of filled with stories within the industry, because if you actually look at the composition of the business, um you know, essentially it's dominated by black african women and you know, 51% of the businesses is owned by normative ana. So, you know, eric has done a fantastic job of trying to create a little bit of transformation within the industry, with at the same time creating top quartile performance for investors over time, which I think is both admirable as well as um you know, doing their investors justice when it comes to top quartile performance. Okay, so fund is an income fund and, you know, given the markets, have read it quite strongly this year, taking locally what's your, why choose income fund and on an equity fund locally? Yeah, I think, um, yeah, equity funds are definitely the flavor of the month. Um, and I think the easy money has probably been made when it comes to equity returns, um, notwithstanding the fact that, you know, we still believe that equities will do well over time. Um, but when you're thinking about income and you're thinking about the kind of investors that dominate the South african landscape, if you just look at the statistics, you know, owning a good income manager in this day and age to either help manage risk or mitigate some, some downside as well as trying to cater for income. You know, understanding who to use in that space is going to be crucial. And, you know, having a manager that is both sort of flexible, uh nimble and understands the fixed interest landscape as well as terrible does um does lend itself to to us, you know, talking about this this fund, which, you know, not many investors will know about because, you know, they have a teak manager, they're actually quite small, which we actually think is the allure of this kind of strategy. Okay, so he has a hedge fund background and has built a very good practice, explain to me what he's done from a hedge fund perspective, but do you think as value on an income fund? Yes, so I think it it comes back down to the philosophy of how they translate some of those hedge fund um tools into the long only space. Um And so the risk management is exceptionally important when they manage a portfolio. Um and it is actually the be all and end all of of how they manage the portfolio and what they do is they utilize a combination of qualitative and quantitative factors. It comes with a vast amount of experience, understanding um fixed interest and and the interest rate environment, both locally and globally. And so he comes with a more of a qualitative top down approach to how they manage it and what Tavana comes with a mathematical quantitative background. And so when they're building the portfolio, they use the art and the science to bring together a portfolio that helps too risk managed first, before they try and lay down the performance or the return for for investors going forward. And this income fund, is it forced to buy short term instruments, would kind of buy longer dated bonds. So it's a fully flexible fixed interest portfolio. It sits in the multi asset income space. Um It tends to be more vanilla in in its in its constituents in in the sense that it doesn't try to be one thing to, to to everyone. In terms of, you know, for example, 100% credit fund or 100% exposed to phenomenal bonds, they play across the instrument universe that they allowed to bar local equities or for equities. Um And so they do use the full spectrum of the investment universe. And what was interesting for us when we looked at the way they manage portfolio in terms of duration, duration being one of the key components to how you manage fixing come portfolio. They tended to be the most active, out of, out of most of the managers that we found in the fixed interest or multi acid income arena. Um You know, some of the larger managers tended to have a duration that fluctuated a very um I guess slowly or not to to in a narrow band, whereas their duration, you know, went anywhere from a half half year, 23 years, which is actually quite a wide duration ban for income manager. Um As opposed to some of the larger counterparts which you know, Harvard um Could I say 1.5 years and never really got out of that range. Um And so that's just one of the ways in which they manage the portfolio quite actively. Okay, before we get onto your second fund idea, what's the current yield of the fund? So currently older, the fun is probably closer to about 7% at at the moment, which actually doesn't sound a hell of a lot, but because short term uh interest rates are closer to say three and R4%. And on the money market fund, you could only probably get closer to 4% yield. Um That is actually quite attractive, but it does mean that it comes with a little bit more risk than usual. And I think it's just the kind of environment that we find ourselves in at the moment with the short end of the curve anchored at the 3.5% zone. So what's naturally have has had happened is more managers have had to have gone and pushed out their duration a little bit, and we've seen that across the multi asset income spaced. Um He's probably been a little bit more aggressive in that in that particular arena, but that's why he's been afforded a slightly higher yield than I would say, the average income strategy out there, I guess for clients buying this fun, they need to realize with extra yield comes extra risk and you're not gonna get 7% for risk free assets. Okay, so moving on, the second fund Rafiq, which one is that? Yeah, that's the Baillie Gifford global stewardship fund. Um It's actually quite an interesting fund again and you know, it really talks to um some of the initiatives that we as a business are looking at both places invest and and the broader son of investments. Um and so they really sort of focus on E. S. G. And and SGS in particular, which is something that that we are taking too our investment process from now into the future. Um And really in South Africa that that's in its infancy. Um And so, you know, the approach and what we're trying to do is actually quite synonymous with with each other. I thought was a really good way to explain out that you don't have to forgo for sake returns by having um and E. S. G. Type philosophy or mandate you know you can find companies that adhere to those principles as well as deliver fantastic returns. And Baillie Gifford was one of those um managers and and the global stewardship fund in particular that demonstrated that over the last five years. Um And so we use it within our offshore building block portfolio as a bit of a growth strategy. Um and it's a very unique business 109 years old. There's 41 owners in the business. Active owners in the business. Only active members of the business can own shares when a member he tires he has to or she has to willingly sell their shares over a period of time. Okay so take the steer chip fund and compare it to the global growth fund that most people know about. How what is the performance been like versus one against the other. Yeah it's probably been the assimilation. This one's probably been a little bit better because of um it's bias um because the way that the funders managed and being a bit more concentrated so it has between sort of 70-100 stocks um And um you know tends to be a little bit more high conviction but I just think that the kind of environment that it's found itself in has led to a really good out performance relative to to the global growth portfolio and that's just kind of indicative of the fact that they had this E. S. G. Overlay um and not being exposed to part of the market that historically you know a vanilla growth fund would be exposed to. Um maybe Giffords Global Growth Fund. The other fund it runs, um has exposure to Tesla, You know, people talk about it does this this stewardship fund also hold Tesla. It does hold Tesla actually, and it stopped in. Um, I'm sorry, repeat, how does that fit into E. S. G. Metrix around governance? Because in as many ways that, you know, he's an incredible leader, he's also from a governance perspective, has often done some very strange things. So how does Tesla fit into the TSG strategy? Yeah, the way that skin is really on the east side of E. S. G. As well as, you know, the overload that they have around a stock, which is essentially what they want to buy is a long term sustainable company. And, and so what they tend to do philosophically is to say, well, they want to understand a sustainable business over the long term and they'll buy it um in in a material way because they believe that if you buy those companies over the over the long term um they'll deliver in excess of a multiple to two, maybe three or four multiples from its original purchase. Um So it fulfills the bucket of you know is it gonna be a long term sustainable business into the future and then does it comply with some of those E. S. G. Factors that they that they look at? And so obviously within the E. Component? Um you know it's it's quite a big or I conviction call within within the E. S. G. Scored escorting that they do but with regards to governance I mean I guess that one is uh you know I guess up the debate um and it's something that we haven't really chat to them about but something we would definitely um pick up into the future. Um So yeah I mean something that that we will look at. Uh there's something else about the fund, it has a sterling benchmark. They're trying to outperform I think U. K. C. P. I. Whatever by 2%. No it's actually the NBC I. World. All countries will uh Indeed yeah. By 2%. Yes. But if you look at their benchmark it's mostly us stocks. Why do they have a sterling benchmark when it's mostly dollar assets they're holding? Yes. So the fun actually has a couple of share classes across the different um uh currencies. So um you know anything from USd to gbP um and as well as the euro class but essentially the clients buy into all the same assets. Um And so whatever those assets are domiciled in is is that it turns that they get converted back to the the share class of of origin when it comes to the currency that they're looking at. Um So I guess it's just a function of the way that the fund is set up as opposed to something intentional around it being um uh dollarized or hedge back all into the domiciled currency of the share classes choice. Okay, so final question, if you're effect the funds done incredibly well. I think anyone who looks overseas looked at Beni Gifford with big eyes and thinking, Gosh, I wish I bought it earlier. Um we're now 12 months in their returns have come down a little bit as the value trade has done better. Is this a five year fund holding or is this the one year fund holding? What's your sort of benchmark here? From a time perspective? I mean that's an interesting question. I would suggest that this forms part of a long term portfolio and and that what you need to understand, um at least in the way that we manage a portfolio is, you know, we don't hire and fire managers. We don't, we certainly don't chop and change them. And the way we try to build our exposures to managers is through understanding our style exposure while factor exposure relative to the benchmark that we use, which is the immune ci world. And so they form part of a component within our growth strategy. Um And and I think essentially what you need to do is to understand that, you know, when you're investing in equities and when you're investing in the manager of this nature that your performance is going to be, But Lumpy as we saw over the last 3-5 years and and obviously over the last six months they've underperformed back quite some distance. Um what you think if you've got a very long term horizon and, you know, you you you're afforded the opportunity of time, this is one of those funds that you really should just, you know, look at, do your homework and hopefully put it in your bottom drawer and you can sleep well at night because the way the world is moving towards E S G and S D. G. S and their long term approach to investing and just their pedigree, you know, should give investors comfort that when they do sit in their portfolios, they shouldn't worry too much about the short term volatility and and think a little bit more long term. Terrific. Thanks as ever for your insights. I really enjoyed it. Thank you very much. Thank you.