When Corion Capital launched a new actively-managed equity fund 13-months ago, it wanted to do something ‘very different’.
‘What we tried to do with this portfolio is ask managers for their best investment ideas,’ Corion CIO David Bacher told Citywire South Africa in an interview. ‘Then we remunerate them for those ideas. The funding goes with the investment ideas. It is not a fixed allocation to managers.’
The strategy has delivered excellent initial performance. The R43 million Corion Prime Concentrated Equity fund ranks ninth out of 194 funds in the Citywire South African equity category over the year ended October, with a return of 60.3%.
The fund also significantly beat the return of its benchmark, the FTSE/JSE Capped SWIX All Share index, which returned 39.8% over the 12 months.
‘When we interact with other managers, we talk about four to five of their high conviction calls,’ said Bacher, who co-manages the portfolio together with Simon du Plooy. ‘The rest of the portfolio [outside the external managers] is about reducing the risk relative to the fund’s peers or benchmark.
‘We have built a propriety risk management process that takes those underlying managers and selects stocks to get a more diversified portfolio in terms of sector, liquidity and dispersion risk.’
Corion allocates about 70% of the fund’s assets to external ideas and 30% to its own managers’ ideas.
Bacher said the ‘best ideas’ based approach used by the fund developed from Corion’s hedge fund experience.
‘We thought the next extension was to bring this to the mainstream world. Corion is quite aware of the flaws of multi-management. For instance, by blending too many managers, you often get an over diversified portfolio, but there are many positives.
‘The fund’s “best ideas” approach was an evolution of our risk management systems, thinking and practice.’
At the end of October, the four underlying managers in the fund were Florin Capital Management, ClucasGrey Asset Management, Westbrooke Alternative Asset Management and Cast Iron Capital. In addition, the fund recently appointed Keith McLachlan from Integral Asset Management.
‘Corion has been in the industry for twenty years, mainly in hedge funds, so we have a lot of relationships. We speak to managers that are less in the limelight and who are willing to do this.
‘We are fortunate to have relationships with people who know us, trust us and believe that this kind of product can grow significantly. Corion has probably got a pool of ten or so managers in the industry who we think are ripe for this kind of product.’
Bacher attributes the fund’s annual return to its managers’ stock picks doing well.
‘For instance, Motus, Distell, Aveng and MTN. Our underlying managers have found value in South African small and mid-cap stocks. You will not get a chance in your lifetime to pick up stocks at these valuations. We expected corporate activity to drive share prices at these levels.’
The fund is limited to between 18 and 20 stocks. The fund’s top ten stocks at the end of October were: British American Tobacco, Long4Life, EPE Capital Partners, Anglo American, Absa, Italtile, MTN, Assupol, Prosus and Afrimat.
‘The fund’s new ideas are Northam Platinum and Momentum Metropolitan. Two months back, we added Massmart,’ Bacher said.
On the outlook, Bacher said the fund was rotating its holdings as a lot of its ideas had played out.
‘The fund is unlikely to be exposed as much to the mid and small-cap sector,’ Bacher said.
The fund charges a management fee of 1%, excluding Vat.
The Corion Prime Concentrated Equity fund is one of Corion Capital’s 12 funds, which includes six hedge funds. The fund manager has R12.5 billion in assets under management, mainly under the banner of third-party clients.
‘All of Corion’s funds have a significant portion of the assets managed by selected and appointed underlying managers. Unlike many multi-managers, we do, however, internally manage certain beta and systematic, rule-based strategies,’ Bacher said.
Justin Brown is a journalist 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.