The resurgence in value last year after a long period of underperformance meant that many of 2021’s top performing unit trusts were recovery stories. Of the 20 best performing general equity funds in 2021, 11 were bottom quartile in the category for 2020.
It is notable that very few funds were top performers across both years. In fact, just six South African general equity portfolios were top quartile in both 2020 and 2021.
That in itself is a commendable achievement by these managers, as the market drivers over these two periods were very different. It would have required an expectation of how much things might change, a willingness to be flexible, and, particularly in 2021, an inclination to invest away from the benchmark.
However, four of these funds took this level of consistency one step further: they are top quartile performers over the past five years as well.
|Local equity funds that were top quartile in 2021, 2020 and over the past five years|
|Fund||2021 return||2020 return||5-year annualised return|
|Investec Wealth & Investment BCI Dynamic Equity fund A||60.20%||11.60%||10.90%|
|Counterpoint SCI Value fund A1||43.60%||18.30%||14.70%|
|M&G Equity fund A||36.50%||9.20%||11.20%|
|36One BCI Equity fund A*||30.5%||18.9%||14.1%|
|Asisa South Africa equity general sector average||27.50%||2.40%||7.80%|
*The 36One BCI Equity fund figures have been amended in this table since this article was first published
This list is striking for two reasons.
The first is that it is so short. There are 120 funds in this category with track records of at least five years, so this is just 3.3% of them. That is a vanishingly small percentage of managers to have shown this level of consistency.
Of course one might argue that, given how markets have behaved over the past five years, if managers were true to their philosophy then it would make sense for them to underperform somewhere.
By implication, however, that argument would suggest that the managers of these four funds somehow didn’t stick to their philosophy.
That would be an extremely bold statement to make in the case of a firm as stable as M&G.
It would also do a disservice to the managers on the other three funds, all of whom have been managing money for decades. Luck will always play a role, but the managers of these portfolios are all experienced enough to have long-since established their investment DNA. None of them are coming up with ideas on the fly.
The ‘stick to your knitting’ argument therefore only goes so far. Clearly, there has been room for managers to be both consistent in their approach, and in the outcomes they have delivered over this period. But only very few have got it right.
The gain without the pain
The second point to note is that it is almost certain that these are not the four funds that any local fund selector would have named if the question had been posed as to which four equity portfolios were most consistent over the past five years.
It is likely that the 36One equity fund managed by Citywire A-rated Evan Walker and + rated Cy Jacobs would have been on many lists. The performance of M&G’s portfolio under Chris Wood and Yusuf Mowlana is also unlikely to have surprised many. But the other two funds are not widely held or recognised.
The Investec Wealth & Investments BCI Dynamic Equity fund, managed by Citywire + rated Barry Shamley has only R848 million in assets under management. The Counterpoint SCI Value fund has just R380 million.
The performance of the Counterpoint portfolio is particularly interesting.
For most of this period, it was managed by Sam Houlie and Raymond Shapiro. Following the firm’s merger with RECM and Houlie’s subsequent departure from Counterpoint, Piet Viljoen is now in charge.
It may be that there has been some extreme good fortune in that the timing of portfolio manager changes has coincided with shifts in market dynamics. This may be part of why the fund has got some big calls right, such as the decision to move entirely out of offshore equity and thus benefit more fully from the bounce on the JSE.
But this portfolio is nevertheless a very rare example of a value fund that has not been hugely volatile. It did underperform its sector in 2017, but according to Morningstar, it has been top quartile in each of the past four years. In 2020, when most value managers struggled, the fund was the fourth best performing equity portfolio in South Africa.
This illustrates why the argument that ‘the market wasn’t in our favour’ should never go unscrutinised. If a value fund has performed this well across these different market periods, that shows there can be more to any style-oriented investment philosophy than just waiting for the market to help you out.
Fund selectors should bear that in mind the next time they get that hoary excuse from a manager.
Patrick Cairns is South Africa Editor at Citywire, which provides insight and information for professional investors globally.
This article was first published on Citywire South Africa here, and republished with permission.