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Insights from one of SA’s longest-serving fund managers

Gail Daniel has produced consistently good returns as manager of the Ninety One Managed fund for more than two decades.
The Ninety One Managed fund managed by Gail Daniel. Image: Supplied

The Ninety One Managed fund was launched just over 27 years ago, and Gail Daniel has managed it for almost that entire time.

She was in charge when the fund launched in 1994, then moved on to a different portfolio around the turn of the millennium. She returned to the role in 2003 and has managed the fund ever since.

This makes her one of the country’s longest-serving portfolio managers on a single fund, along with colleagues Citywire A-rated John Biccard on the Ninety One Value fund, Clyde Rossouw on the Ninety One Opportunity fund, and Citywire AAA-rated Daniel Sacks on the Ninety One Commodity fund.

The long-term returns she and her team have generated for investors have been outstanding.

The Ninety One Managed fund was launched just over 27 years ago, and Gail Daniel. Image: Supplied

According to Morningstar, there are only 16 South African multi-asset high equity funds that have 20-year track records, and the Ninety One Managed fund sits in the top quartile over that period. It has delivered an annualised return of 13.4% for the two decades to the end of November.

Notably, it is comfortably the top performer among this group of long-standing balanced portfolios over 10 years and five years. Over the decade, it has returned 11.7% per annum, and 9.7% per annum over the past five years.

This is a rare level of persistency that also reflects the consistent approach that Daniel has taken to managing the portfolio.

‘My DNA is in equities’

“This is a balanced fund, but I have always had a focus on stock picking,” Daniel told Citywire South Africa. “My DNA is in equities, as opposed to some other balanced managers, whose DNA is in bonds.

“And I’m quite clear on what I look for in taking concentrated equity positions: earnings revisions to be positive; some valuation argument; I like it if the share is under-owned; and I like it if management are unloved because the market tends to flip-flop between liking and hating management, and often that’s a function of the economic headwinds or tailwinds more than anything else.”

Daniel also sticks to investing in larger companies.

“I don’t play in small caps because I do get things wrong, and when I do I want an exit door. I don’t want to have to pretend I’m right just because I can’t sell the stock.”

There is also a clear approach to the fund’s international component.

“I will always run the fund’s international exposure as full as I can because you get so many ways to express an idea in offshore markets. They are bigger, and liquidity is so much better. I also run that offshore portion myself with the help of analysts.”

She believes this is an important differentiator.

“For a lot of managers, the offshore portion of their local balanced fund is a portfolio that is mainly run to be sold offshore or is an offshore fund just put into the local fund, whereas I run the offshore portion of the fund with very few shares – 10 to 12 stocks. A global equity fund could be 100 or more.

“I am able to take big share bets that can have a meaningful impact because they have a meaningful weighting in the overall portfolio. It’s pointless sitting with a position that is only going to be 0.5% in the ultimate portfolio.”

Return drivers

This also means Daniel is able to use the offshore allocation to complement the fund’s local holdings, rather than as just a generic exposure.

“For example, we can run a lot of tech in the offshore allocation because a South African investor doesn’t have much exposure to tech. Healthcare is also much easier to play overseas, which I’ve done through some vaccine stocks. Even within emerging markets you can find these kinds of opportunities. I don’t have a lot in the fund, but I have done well out of Russian banks because their mortgage market is growing a lot faster than ours, and they have raised interest rates quicker, which widens margins.”

This offshore allocation has been an important driver for the fund historically, and Daniel believes it will continue to be the case over at least the medium term.

“I don’t think there’s a great structural case for local equities. They have underperformed for a considerable period of time. They did have a massive bounce from last year, but that has petered out in the last few months. I think the drivers are subsiding. If policy tightens in the US, liquidity tightens a bit, that will take the wind out of the sails for emerging markets.”

She added that very few local companies on the local market have beaten their cost of capital over the past decade, and the environment is likely to remain challenging.

“Do I think the cost of capital is going to fall? No. Local rates will go up with US rates. There’s no reason for the risk premium to reduce. And do I think that the growth rate is going to leap up in the next five years? No. We only managed to grow at 2% when China was growing at 8%. Now China seems to have stepped down a level, and that will affect us too.

“Whichever way I cut it, I can’t get to a reasonable growth scenario for South Africa.”

Patrick Cairns is South Africa Editor at Citywire, which provides insights and information for professional investors globally.

This article was first published on Citywire South Africa here, and republished with permission.

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