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From SA’s worst performing manager to a top performer

RECM reverses its fortunes.
RECM executive chair Piet Viljoen says mistakes were made, overconfidence was a factor, and lessons were learnt. Picture: Supplied

Towards the end of 2015 Nedgroup Investments announced that it was replacing RECM as the manager of the Nedgroup Investments Managed Fund. After years of chronic underperformance, their patience finally gave out.

To September 30, 2015, the Nedgroup Investment’s Managed Fund was the worst performer in the South Africa multi-asset high equity category over one year, three years, five years and 10 years. This was also far from the firm’s only disappointing display. RECM’s performance across all its funds had been noticeably poor for some time.

As the graph below shows, the RECM Equity Fund was delivering significantly negative returns over a period when its peers and the market were positive.

Source: Morningstar (Click to enlarge)

This led to both a substantial drop in the value of its funds, and to large withdrawals from investors. Between June 2014 and June 2016, the assets under management in RECM’s unit trusts more than halved from R5.9 billion to R2.5 billion.

Investment process

This coincided with a period in which value investing substantially underperformed as a style. As a value investor, RECM was heavily impacted. However, executive chairman Piet Viljoen acknowledges that this was not the primary reason for the firm’s struggles. What went wrong is that RECM deviated from its investment process.

“When I started the firm 2003, we worked from the point of view that we couldn’t know everything about everything,” says Viljoen. “So what we tried to do is build diversified portfolios of fairly uncorrelated, cheap situations, some of which would work out and some of which wouldn’t. But if a few of them didn’t work out, it wouldn’t sink you.”

Over time, however, this changed. A combination of what Viljoen acknowledges as ‘overconfidence’ and transferring more responsibility to younger members of the investment team, led to changes in how RECM built its portfolios.

“The process morphed into a high-conviction, deeply-researched, large-position type portfolio,” Viljoen says. “In my opinion, that was a mistake. I allowed it to morph from an environment where you hold your beliefs lightly and don’t bet the house on one particular outcome, into one where you take big bets on high-conviction ideas, which are very well researched and thought through, but if they don’t work the portfolio stinks.”

2016 to 2018

Over the long term, a high conviction portfolio with a few large holdings can work extremely well. Over the short term, however, it can result in significant volatility. Particularly when this occurs to the downside, it becomes difficult for investors to withstand.

“We underestimated how much this would hurt our clients,” Viljoen acknowledges. “You can say that they just have to sit through it, but it’s extremely hard to do.”

RECM was therefore forced to look at what it was doing, and go back to the process it had originally been known for. Fortunately for the firm, this coincided with a period in which value investing found more traction in the market.

“In 2016 there was a rebound for value stocks from a very oversold situation at the end of 2015,” Viljoen explains. “There had been panic around resource stocks in general and platinum stocks in particular, and they got ridiculously cheap. We stayed with our positions in that part of the market into 2016 and those stocks rebounded strongly.”

The following year was less rosy for RECM as large stocks like Naspers drove market returns. However, in 2018 many former market favourites took some substantial hits, once again creating opportunities for investors with a more contrarian view.

“It started with Steinhoff, and was followed by Aspen and others,” says Viljoen. “We didn’t own any of them because they were overvalued.”

The value of value

The result is that for the three years to the end of December 2018 the RECM Equity Fund was the top performing general equity fund in the country. For the 2018 calendar year it was one of only two South African equity funds that showed a positive return.

Source: Morningstar (Click to enlarge)

The RECM Balanced Fund was also in the top 15 performers in the multi-asset high equity category for 2018.

Viljoen is quick to acknowledge that it would be presumptuous to claim that this all has to do with RECM being clever.

“There’s so much luck involved that it’s difficult to disentangle what is luck, what is skill and what is the market,” he says. “I wouldn’t want to claim that it’s all skill.”

It is, however, evidence of a good value investment process working. In a difficult market, value should provide investors with some defence.

“Generally in good times we make less money than most others because we don’t own the popular stuff – the rock ‘n roll assets,” Viljoen says. “In bad times we lose less or even make a bit of money. If you put those periods together it gives you a satisfactory outcome.”

When RECM was underperforming so badly, it was not fulfilling this role. The last few years have however delivered signs that it is showing the ability to do so once again.

“Classic value funds are very different from the index and very different from the average fund,” Viljoen argues. “We are of the opinion that they can play a very important diversifying role in most investors’ portfolios. If I were constructing portfolios today, I would have a large portion in index funds, and allocate around the sides to something very different like a value fund.

“You never know when the value cycle is going to do well or badly,” he adds. “In hindsight it’s always very clear, but before the fact you just don’t know. It’s best to pick your asset allocation based on sensible assumptions and stick with it.”

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Past failure is no guarantee of future success.

And past success is no guarantee for future success!

And past failure is no guarantee of future failure.

Nothing guarantees future success in investing. So what’s the point?

Rule no. 1 of good trading AND investing: avoid large losses.

According to the graphs since 28/2/14, if you’d stuck with RECM you’d still only have around 95% of your capital, whereas the JSE Total Return would have given you 129%. It takes a return of +55.33% to make up for a return of -35.62% to break even. RECM only achieved +47.21%.

Yes it’s still a sad story for RECM, (very glad they caught up so well though).

Yes there were more to their failures than just value style cycles. Shows you how dangerous game this can be and how things can go wrong.

I am ivested with them since 2011.I often got the feeling they look back too much at 2008 dip and base their thinking around something similar to happen soon, whereas it might not happen.

Platinum dropped them badly.

They also go in too early in a declining stock, and then often that stock still drops years after they have bought it.

Inv Value Fund also battles.

Value investing is not for everyone. I had no luck with both these funds

Blame game

Nedbank blame RECM

RECM blame younger team members.

It is the economy – – – – STUPID!!

Actually it’s the ANC

No not really. The problem is that RECM was underperforming other managers. Economy does not really paly a role here – all managers exposed to the same macro economic backdrop

If there is so much luck involved why do I have to pay a money manager fees to manage my money – to get lucky? Perhaps I should manage my own luck…

You think you can do better than Re:CM. They will bring a stretcher for you after 6 months. Investing is easy from a distance and with the benefit of hindsight. Active management is one of the toughest games in town and only the very, very best survive. Amateurs have no chance.


I manage my own since I started late 80’s but in earnest since about 95.

My numbers and those of some friends and family absolutely MURDERS the returns of the fund managers anywhere – over 20% per annum CAGR. It is not because we are uniquely brilliant, but probably due to:
(1) we are not bound by rules such as prescribed assets or a “style”. I would say 90% offshore equities.
(2) we break most of the managers’ rules when it comes to risk concentration. We trade maybe four times a year in a portfolio of a dozen shares where at times single positions are over 50%
(3) we can go from 10% cash to 90% cash in the big cycles. We were mainly cash with the financial crisis, could target absurd situations, were mainly equity shortly after, and could lighten to mostly cash a few months ago.
(4) we do not suffer from the compound effect of 2% or 3% fees.

We are “amateurs” but are in no need of stretchers thank you

Watch the video on YouTube where Warren Buffet explains that if someone invested US$10,000 in 1942 in a S&P500 Index Fund, he would have had US$51 million by 2018. (Of course index funds didn’t exist way back in 1942). That person could have been someone who didn’t understand the difference between a debit or a credit and knew nothing about business. Yet he or she would have had 509,900% growth! The only person negatively effected would have been your broker or fund manager because the TER is a mere 0,2%. Why on earth you want to pay these guys to be professional gamblers with your money is beyond my comprehension. They are on their way out in any case.

1942 was slap bang in the middle of WW2!!! who had $10 000 to invest then???? who was even thinking of investments – bombs dropping all around you!!!

Ah but the Yanks hadn’t entered the war in 1942 so there were many persons with $10,000 per capita – speak to Al Capone and Bugsy Malone


The USA formally entered WWII on 8 December 1941, one day after the attack on Pearl Harbor by Japan.

Whereas previously one detected a hint of intellectual arrogance with RECM (especially with the younger generation that has since left), there now seem to be a degree of humility. If true, this bodes well for the future of the firm.

I am on the verge of retiring. Seems to me a lot of these legally protected pension peddlers are punting unit trusts as a solution to your investment vehicle. What worries me big time is statements like “There’s so much luck involved that it’s difficult to disentangle what is luck, what is skill and what is the market,” he says. “I wouldn’t want to claim that it’s all skill.”

WTF – I stand to loose a lot, what do they loose? And then the law forces me to use these money-sucking leeches! And I am not specifically referring to RECM only, it applies to the majority.

Just make sure that you don’t let them take as much as one cent from your hard-earned funds.

@Koos, you don’t need to use any of them to manage your funds, you can do so yourself. Choose your own ETF’s or direct shares if you like, through a living annuity.

Doesn’t look like they’re a “Top Performing” Fund that I can see. Where does this come from???

I have been looking after my Living Life Annuity myself after so-called Experts lost one-third of my Annuity after one year! Also got ripped off with charges.

Then use index funds

Most investors can’t handle this type of volatility, and its makes staying the course very, very difficult.

With index funds, you are never put in the position of having to fire an under-performing manager – much easier to stay the course from a behavioural perspective, before we even get into the fee debate.

Remove manager selection risk.

The funny part of this story is left out. Nedgroup took the mandate away from RECM and gave it to Truffle. In 2016 RECM was the best performing Multi-Asset High Equity Fund, Truffle was in the bottom quartile. They then went and changed the investment policy so historical performance did not need to be reported. Nedgroup investors got the worst of both sides of the coin.

If professionals can’t pick fund managers and invariably make decisions at the point of maximum pain (often the worst time), why then does the man on a street or your local financial adviser thing he/she can without destroying value?

Isn’t it amazing how Nedgroup (big corporate once again) got away with murder when they changed the investment mandate of the their Managed Fund so they could hide the poor investment returns. Please, please can MW get a comment from Nedgroup whether this is fair and moral to investors?

It seems, in this case, that Nedgroup’s past failure was an assurance of future failure.


Go on Patrick, you have been asked before.

Get that luminary Nikc Andrew on the program and grill him.

Ask him why a class action should not be instigated against Nedbank

Go on.

“Generally in good times we make less money than most others because we don’t own the popular stuff – the rock ‘n roll assets,” Viljoen says. “In bad times we lose less or even make a bit of money. If you put those periods together it gives you a satisfactory outcome.” Really?

Since inception returns for the RECM equity fund which has been going nearly 14 years (Mar 2005) and surely long enough judge the above statement by.

RECM Equity Fund 8.9% vs Benchmark 13.8% underperforming by 4.9% per annum, all the while paying active management fees for negative alpha.

Passive investing is the answer.

So you want to consistently underperform? That’s the reality of passive investing. Not saying you shouldn’t do it.

The average passive investor must – that’s right, must – outperform the average active investor, net of costs. In effect, indexing guarantees that you’ll be one of the winners. Why would a typical investor want to turn down that opportunity??

87% of active funds under-performed the index in the General Equity sector over 5 years to Sept 2018…79% over 3 years…the number of funds constant in their out-performance was 4! Good luck choosing the winners…

Alpha Generator:

Passive investing in low cost ETF will guarantee you exactly the market, whether up or down. It will give you no alpha though 😉

Re your post about performance. There is absolutely no way you have been professional fund managers over 23 years. Your ‘market timing’ approach can only fail. How do you calculate your performance? If you did this correctly the facts will become apparent to you!


I can’t reply to your reply, but maybe you will see this.

In our group we manage our own and sometimes family office funds – not other people’s money. That in itself may be why we do it well as we are incentivized by personal preservation without a backdrop of taking 1 or 2 or 3 percent off the top from clients.

My calc is a simple spreadsheet of cash in, accounting for cash extracted out for taxes, and present value. Excel does the rest, argue with Microsoft on the math if you wish. So that is an IRR accounting for realized after tax gains excluding unrealized current positions.

Even a broken clock is correct twice a day!

Is it bs baffles brains , or smoke and mirrors ?
Thank god my money is finally out of the hands of these thieves.
I once had a snakeoil salesman giving me his schpiel and when i declined his proposal he wanted to charge a few grand for his visit- showed him the finger- yeah baby ! it felt good

One thing that some people might miss is that RECM we’re managing a balanced fund like cowboys. They readily admit they drifted away from quality companies and got caught buying junk stocks that should never have been in a balanced portfolio. I am glad RECM say they have learnt from this but it has been at the cost of the clients.

“There’s so much luck involved that it’s difficult to disentangle what is luck, what is skill and what is the market” – he said it, not me. Snake oil salesmen, the lot of them. Buy tracker funds

End of comments.





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