Several Nedgroup Investments managers choose small for optimal performance
Remaining small allows a fund manager greater flexibility and a larger investment opportunity set. This explains why Nedgroup Investments prefer smaller boutique-style managers as part of its Best of breed asset manager partnering strategy.
Nic Andrew, head of Nedgroup Investments said, this is particularly relevant in South Africa, where the number of counters is limited and liquidity further constrains stock picking. For example, a manager with R10 billion can purchase shares in three times more companies than a manager with R100 billion, before owning more than 10% of the free-float. It is also often among the mid- and small-cap companies that the opportunities lie.
One of the specialist equity managers selected by Nedgroup Investments, Neil Brown, is now exclusively available through Nedgroup Investments, specifically the award-winning Nedgroup Investments Growth Fund. Neil Brown and Richard Hasson run OMIGSAs Select Equity Investments, following the restructuring of the former OMAM into smaller boutique units. Brown and Hasson aim to cap their assets under management at R24 billion, in order to prevent their boutique from diluting its high conviction concentrated portfolios. Neil Brown will, therefore, not manage any new portfolios for retail clients. The only remaining portfolio through which investors will be able to access Brown, the Nedgroup Investments Growth Fund, delivered 45.0% p.a. over the past three calendar years. In comparison, its peers in the growth sector returned 38.6% p.a., on average, while the FTSE/JSE All Share Index delivered 37.7% p.a. (source: Standard & Poors Micropal).
At the end of 2006, Polaris Capital also closed its doors to new segregated institutional investors in order to remain focused on generating the highest possible returns for its existing clients. However, retail clients still have access to managers Tim Allsop and Anthony Sedgwick via the Nedgroup Investments Rainmaker and the Nedgroup Investments Entrepreneur Funds respectively. The latter fund was the top performing unit trust fund in South Africa for the three years ended 31 December 2006, with an annual compound return of 46.9% (source: Standard & Poors Micropal). The Nedgroup Investments Entrepreneur Fund currently has limited capacity of about R100 million.
Another manager in Nedgroup Investments Best of breed stable, RE:CM (founded by Piet Viljoen), no longer takes any further business from institutions. The latest Alexander Forbes S.A. Equity Manager Watch survey shows RE:CM as the number one equity manager on a risk-adjusted basis for the three years to the end of 2006. This deep-value house is finding fewer investment opportunities in the local equity market and, therefore, believes it makes sense to share its existing good ideas with its current client base, rather than dilute these ideas by accepting more business. However, the Nedgroup Investments Managed Fund, managed by RE:CM, remains open for investment. RE:CM recently took the maximum allowance of 15% of this fund offshore, as they believed the rand was approximately 10% overvalued at that time. Two-thirds of the allocation is invested in global equity and the rest in dollars and yen, which RE:CM believes is the most undervalued currency at the moment.
Until late 2006, investors could access the skills of leading financials sector analyst Kokkie Kooyman either via the Sanlam Financials Fund or the Nedgroup Investments Financials Fund. Now SIM has appointed an alternative manager for the Sanlam Financials Fund, leaving the Nedgroup Investments Financial Fund as the only portal to Kooymans local financials expertise. From the date of taking responsibility for the Nedgroup Investments Financials Fund, 1 June 2004, until 31 January 2007, Kooyman delivered 44.4% per annum to investors in the fund (source: Standard & Poors Micropal).
Andrew concludes, Investors can take comfort from the fact that the above managers prefer to constrain size and continue delivering good performance, rather than grow their assets under management beyond the optimal size, and the funds remain well positioned for excellent returns.
