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Old Mutual will not be closing its gold fund

Despite a successful ballot.

The Old Mutual Investment Group has decided against shutting the Old Mutual Gold Fund. The unit trust, which has been around since 1990 and is the only remaining pure gold equity fund in the country, was slated to be merged into the Old Mutual Equity Fund from the start of November. A last-minute decision has however been made to keep it open.

Read: Old Mutual to shut its two resource sector unit trusts

Elize Botha, MD of Old Mutual Unit Trusts, says they were concerned about the number of clients who wanted to stay invested. They therefore elected to continue giving them that option.

The ballot

As with the closure of any unit trust, Old Mutual had to seek the consent of investors through a voting process. This is however largely a formality as few investors respond to the ballot, and the legislation considers anyone who doesn’t vote as being in favour. In this instance, however, the sentiment from investors was unusually strongly opposed.

“If you look at ballots across the industry, only 8% to 20% of people vote,” Botha notes. “This ballot was in that region, but the number of people who voted against the proposal was higher than we’ve seen in the past.”

This means that, technically, the decision to close the fund was carried. However, after discussions with the Financial Sector Conduct Authority (FSCA), Old Mutual decided to withdraw its application for the closure, since so many of those who did vote were against the proposal.

“We always try to put clients at the epicentre of our thinking and with that in mind we decided to ask the FSCA to revoke our request to merge,” says Botha. “We wanted to take clients’ opinions into consideration, looking at the number who voted against.”

Investor sentiment

Much of the sentiment expressed against the fund’s closure had to do with its recent performance. The Old Mutual Gold Fund has returned over 80% in the past 12 months, making it easily the best-performing unit trust in South Africa.

This short-term strength is however massively overshadowed by its longer-term weakness. Over 10 years, the fund’s annualised return is 2.8% – the fourth-worst performance of any local unit trust.

“In a sense, which is probably contrary to investing wisdom, it would have been easier to close the fund in a year where the gold price was really low and the fund performance was poor,” says Meryl Pick, the fund’s portfolio manager.

“People look at it now as ‘hot’ – it’s on a winning wicket, so why would we want to shut that down?

“But our concern is that the performance you have seen over the past 12 months is the kind of performance you see once every 10 years or so,” she adds.

“As a long-term holder in the fund you do not actually do that well compared to some of our general equity funds.”

The fund is also extremely volatile. While its recent strength has been sharp and spectacular, it can also go the other way. In the last five months of 2016, it experienced a draw-down of 63%, as the chart below from Morningstar illustrates.

Source: Morningstar

“One of the things we’ve decided as a company is that we do listen to clients,” says Botha. “But the fund is volatile and obviously that is the reality we will need to communicate very clearly to investors who stay behind.”

The future

Botha says the decision to keep the fund open will not be reviewed again.

However, Siboniso Nxumalo, head of the Old Mutual Equities boutique, says it is likely that natural attrition will eventually take its toll.

“The reason why we were looking at closing our sector funds is that all of them have structurally had outflows over the last 10 years,” he points out. “If you model this fund over the next 10 years, unless something miraculous happens to gold, the fund by its nature will probably cease to exist.”

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10 year figures quite bad.

If I am not mistaken the NewGold ETF has returned around 10% over the last 10 years.

Maybe best and cheaper to just hold the physical?

I suspect financial advisers are very cautious with allocations to a specialized sector, even if it could play a diversification role. The chances of survival increase if they stay with the herd.

The fund has 41% in Anglogold Ashanti. The fund manager has 6 years investment experience.

Yet another example of recency affecting investment decisions. To recover from the 63% loss the fund needs to do 170%. But it’s recent 80% return is getting people excited. Won’t be the last time we’ll see nonsense like this…

Cute assumption. You know that some people might have bought AFTER the 63 % drop right? Not everyone is holding investments that their oupa gave them at birth.

Merging a Gold Fund into a General Equity Fund – 2 very different investments – smacked of an organisation that cares so little about clients that they think they can do what they like. Hopefully the Moyo and other issues will lower the OM arrogance factor a notch or two.

Was the ballot sent to all OM investors or just those actually invested in the affected funds? No doubt it was all investors. Either way it is a very important aspect that gets no consideration.
So what impact on the percentages given does this have? Surely unless the above is considered it is all in the domain of intentional disinformation.
The regarding of all unreturned ballots as meaning these people agree may be legal but that does not make the methodology fair to those that do actually care and that take the time to return their ballot.
And then none of those that were issued ballots by email were informed of the result by email or any others means. Many must have withdrawn from the affected funds in frustration, but this is also a non-subject.
These informative articles often appear to be written by the subjects own PR people.
The gold fund has no South African competitor. For those that wish to invest in a focused gold fund the only option is offshore.
But there again the only sensible place is offshore now.

Why on earth would they send it to all investors? What a silly little thought!

I would call it the logic of trait analysis. If arrogant disregard is your purpose then it fits, if it makes a noise like pig then it probably is a pig etc.
Their only resources fund didn’t make it into the elevator, let alone to floor of common sense.
Old Mutual never knew that they had the potential to create weapons of mass self-destruction.
Problem is they still dont.

Ballot process guided by legislation and you only ballot the affected investors. FSCA has oversight of the process. The process isn’t good though and does need an overhaul. The only decisions OM makes is 1/ to ballot and 2/ which fund will be the recipient & continuing fund post merger.

Do you know only 15% of all investors voted? The votes to close the fund were a mere 13%. The overwhelming majority of investors who voted, 87%, voted to retain the fund.

OM dare not claim that the 85% that were apathetic wanted the fund to close.

Despite this knowledge, OM wrote to their advisors on 29th October saying, “We wish to inform you our Auditors have confirmed that investors have voted in favour of the amalgamation of the above 2 Old Mutual Unit Trust Funds into the Old Mutual Equity Fund. We believe that the formal Financial Sector Conduct Authority (FSCA) approval is imminent and the funds will amalgamate on 31 October 2019.”

Does that sound to you in accordance with the statement issued by OM Unit Trust’s MD Elize Botha? She says, “One of the things we’ve decided as a company is that we do listen to clients.”

OM is not telling the full story! They did not make the election results available, rather they said that they would obtain permission from FSCA as if it was a formality.

I sent my protest to the highest authority of FSCA. They studied the results and quietly suggested to OM: “Go and rethink your decision.”

OM had no choice but to continue with the Gold fund.

Investment apathy? Or simple cluelessness?

Apathy towards investors. And also cluelessness, about investors, I believe.

This is all guided by regulation. Not sure why so grumpy with OM. Its just playing by the rules that govern all ballots and the rules do say if you don’t vote you’re deemed to have voted in favour. Why vote if you’re in favour and that is the case… save yourself the effort.

The Old Mutual investors fund managed by Siboniso and his team is also a serially underperforming fund with below benchmark performance over extended time periods (1/3/5 years). Has he “modeled” his own expectations for his fund over the next 10 years. Best to be indexed as very.little value add by the “portfolio management” team.

Read the recent Noseweek #240 article “Old Mutual holds gun to Gold Fund investors’heads” for why OM suddenly changed their mind.

OM has developed to be (always been?) a shady company to trust your funds with.

Every decision made seems to be premised on how the executives can extract the most, at the direct expense to the policy holders.

The same sort of shakedown that Moyo engaged in.

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