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RECM to be replaced as Nedgroup Investments Managed Fund manager

Truffle Asset Management to take the reigns.

CAPE TOWN – After a sustained period of under-performance the Nedgroup Investments Managed Fund is to get a new fund manager. Within the next month management of the unit trust will be transferred from RECM to Truffle Asset Management.

The fund, which has declined from having R5.7 billion in assets under management in June last year to R3.0 billion at the end of September is the worst performer in the South Africa multi asset high equity category over one year, three years, five years and ten years.

Performance of the Nedgroup Investments Managed Fund to 30 September 2015

 

1 Yr total return

3 Yr total return

5 Yr total return

10 Yr total return

Nedgroup Investments Managed Fund R

-20.89%

0.04%

2.82%

7.62%

Fund rank

126/126

94/94

72/72

35/35

Category average

6.23%

12.14%

11.35%

10.97%

FTSE/JSE All Share Index

4.79%

15.38%

14.64%

14.75%

Returns are annualised

Source: Morningstar

 

The Nedgroup Investments model is to select top fund managers to manage its branded funds on its behalf. It calls this a “Best of Breed” approach, and currently the managers on its funds include Foord, Abax, Aylett & Co, Prudential and Sanlam.

For the most part its range of funds has performed extremely well, however the Managed Fund has been an extreme outlier as RECM’s deep value philosophy has found no traction in the current market. Nedgroup Investments has therefore been under some pressure to make a change, but had made it clear that it did not want to make a rash decision at the wrong time in the cycle. However, the scale of the fund’s difficulties appears to have finally become too severe.

Head of Nedgroup Investments, Nic Andrew, said that the decision to change fund managers was still a very difficult one to make. He pointed out that they take a long term view when selecting fund managers and understand that even the best will go through periods of under-performance.

“In this case, the extent of the under-performance has been very disappointing for ourselves, RECM and our investors, and much more than we would have anticipated,” he said. “It has been a difficult decision because we are balancing the potential timing of where we are in the cycle against what we think is the best future outcome. In this case, there have been a few changes at RECM, there has been a reduction in assets, and we feel that our clients’ would be more comfortable having their investments managed by Truffle.”

Andrew added that he and many others at Nedgroup Investments have money in the fund themselves, so they share their clients’ interests when making the call about who should be in charge of it.

The change to Truffle

Truffle Asset Management was formed in 2008 by the former CEO of RMB Asset Management, Louis van der Merwe, and the former head of global markets at Nedbank Capital, Hannes van der Westhuizen. They have since assembled a team with extensive financial market and fund management experience.

“With our best of breed process we look for certain characteristics in fund managers that make them natural partners,” Andrew explained. “We particularity like business that are are owner-managed, where the management of the firm invests alongside investors; businesses that are willing to limit the size of their assets to get good returns; and fund managers that have proven long term track records. Truffle has a very stable team that has demonstrated all of those characteristics and with their depth of experience we are just delighted with the partnership.”

Andrew said that Truffle will take operational control over the fund within the next month, and would then start adjusting the portfolio. However, it will take some time to re-align the fund completely as it would be important to ensure that existing clients are looked after and assets are sold and bought at the best possible levels.

Ultimately the idea is to bring the portfolio in line with the Truffle Balanced Fund and merge the two into a single unit trust, dependant on regulatory and unit holder approval. The Truffle Balanced Fund, which was formed in 2011, is currently within the top five unit trusts in its category over both one year and three years.

 

Performance of the Truffle Balanced Fund to 30 September 2015

 

1-yr total return

3-yr total return

Truffle MET Balanced Fund A

15.91%

18.67%

Fund rank

4/126

2/94

Category average

6.23%

12.14%

FTSE/JSE All Share Index

4.79%

15.38%

Returns are annualised

Source: Morningstar

 

Truffle’s Iain Power will take over as manager of the fund. He has been in the asset management industry since 1993, having spent 16 years at RMB where he was a member of the board of directors before moving to Truffle in 2010.

The CEO of Truffle, Louis van der Merwe, said that it was “an honour” and “quite humbling” to be recognised as one of Nedgroup Investments’ “Best of Breed” managers. He added that the partnership fits perfectly with Truffle’s boutique manager business model in which they aim to outsource as much as possible apart from actual investment management.

“For us to be able to partner with a respected player like Nedgroup Investments lets us concentrate more on what we are best at, which is managing investments,” he explains. “It takes away a lot of the non-competitive side of the business like administration, marketing and distribution.”

He added that the merger of the two funds is the ultimate aim, but it the current priority is to address the Managed Fund’s portfolio to align it with the philosophy they use to run the Truffle Balanced Fund.

“We will be managing the two funds with exactly the same approach,” Van der Merwe said. “It will take us some time to bring the Nedgroup Investments Managed Fund into line, and although I don’t foresee any big issues it will be a process.”

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Doing it at the very bottom of the resources cycle maybe the worst idea Nedgroup could have…

I am the first one to wish for the bottom of the resource cycle, but I am afraid the Dollar index is heading for 120 (25% stronger). There is no way commodities will bottom while the dollar is strengthening. The decline in the share-price of commodity producers are only at the halfway-mark now. I have got too much skin in this game. I feel your pain…

Overdue.Very stubborn approach by Viljoen over the past 2 years has contributed to the termination of the relationship.Nedgroup backed him as long as they could but the association was proving an embarrassment. .Performances over a 10 year period was dismal,and Viljoen was looking less and less assured in the public space.

The real disgrace is Nedbank not taking action 2 to 3 years ago.
The fund manager in this case can take a huge slice of the blame but NB were alerted to this by unit holders and others. NB should refund at the very least the last 3 years management fees.

R3bn is a lot of money for RECM to liquidate. I wonder what pressure this would put on prices of the “deep value unloved stocks” held by this fund.

It will most likely be what they call a book over. The shares won’t be actively traded but just transferred to another custody account which Truffle has control over. That’s why Andrew says it will take time for the fund to be re-aligned – Truffle will get the shares and then have to adjust the portfolio to whatever they want.

Makes sense. Still, Truffle will probably want to sell some of the weeds at some stage.

The writing has been on the wall for a while now, so no surprise this is.

Money chases growth, if you aren’t offering growth, it looks for a new home, it’s as simple and as straightforward as that, so RECM, as things stand, is, for lack of a better word, ‘doomed’.
But,I must add, Kudos should go to RECM for remaining true and loyal to their investment philosophy despite the fact that it could ultimately prove to be their downfall.

NO kudos………………….stubborn and it was not their money it was not Nedbank money it was investors money. Kudos my eye.

Viljoen had been undone by rigged stock markets worldwide and the Fed refusing to put up interest rates.Undervalued share prices just keep dropping and those overvalued keep going higher and higher!

As the saying goes…play the hand that you have and not the one you wish for.

Think_B4U_Reply Very good point you make. I feel for Viljoen as the rules of the game have been changed by the central bankers. Old valuation models are not working. You can’t keep fighting it though- you have to join the party at some stage. Also, investment managers keep investing in blue chip industrials because there really is nowhere else to go. Bonds, cash, property, commodities all offering below inflation returns, so just keep plowing the cash from monthly premiums into industrial stocks until the party ends…?

In June 2009 Piet Viljoen said that Trans Hex is ridiculously cheap at R2,70 and he sees the share price closer to between R5 and R20. However,
today it is trading at R2,30. In a previous article on moneyweb RE:CM warned against investments in “popular” shares. Remgro is an all time favourite but according to RE:CM one should avoid these popular shares. Nonetheless, Remgro just seems to perform year after year. 5 years
ago the share price was at around R109 and today it is R276. I don’t know, RE:CM has me in tears.

I think RECM’s clients are in tears too…

They did not have NB bowing it’s own horn on “best of breed”. RE:CM took their own decisions. Shows that NB “best of breed” are just pure luck. Holding on so long was betrayal of investors. Disgraceful.

Value investors are fooled by randomness. The investment methodology works well when the unit of account – the currency- is constant. When the unit of account is debased, on what basis does one determine value? Ask the shop owners in Zimbabwe how that worked out for them during the period of hyper-inflation.

Value investing has merit when the Fed Funds rate is above the rate of inflation, when money has value. When the Fed destroys value by debasing the currency, who is Piet Viloen to find value anywhere? He is fighting the Fed, a battle all value investors are doomed to lose.

I do salute Piet Viljoen for determination and consistency, but Janet Yellen has more of both.

And to think there are still people who trust the Federal Reserve!

RECM will bounce back. . . . . . . and when Truffle comes up smelling rotten – – – – RECM will be good enough
Swings and roundabouts – ho hum

To Ilphil
Not sure under what rock you live, they have been removed as the fund manager as their investments cost Nedbank and its clients a fortune. Losing R2.7 billion should be investigated as it may be malicious, no one with RECM’s credentials should lose that much money

The second part of your response suggests the author is someone with knowledge.

the first few words of your response, however, suggests the author is somewhat severely limited.

End of comments.

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