BJM Multi-Manager unit trusts prove themselves in first year

The multi-management investment model is proving itself in South Africa’s much-changed investment environment, says Barnard Jacobs Mellet, the leading independent equity dealer and equity research house.

A year ago, BJM transformed its long-established wrap funds into multi-manager unit trusts in response to the growing demand among sophisticated investors for fund manager diversification. “The changeover was done to improve tax efficiency, reduce overall cost and improve the efficiency of the multi-manager offering,” notes Louis Bekker, head of BJM Multi-Manager.

“Since then, volatility and substantial losses in some sectors have emphasised the need for manager diversification as a critical aspect of risk management.

“Some managers have substantially under-performed the market median, confirming the wisdom of active steps to control this source of potential downside. Managers that tend to do well during the end of a bull run tend to under-perform during the initial phases of a bear market. From this trend springs the conventional wisdom that past performance is not necessary an indication of future performance. Having the right balance of asset managers, with different but complementary processes and switching between them as and when the market risk factors change is how multi managers add alpha.

“The BJM multi manager investment process focuses on identifying and understanding the investment philosophies and processes of various asset managers and then combining them in a way that will deliver optimal risk- adjusted performance given the prevailing economic risks.

“We launched this initiative to ensure that this risk management tool was available to our clients at a time when it was sorely needed. In addition, fund performance has been satisfactory in comparative if not in absolute terms.”

Morningstar unit trust performance figures for the year to the end of October 2008 apply to the new multi-manager unit trusts, but are seen as a continuation of the top quartile performance of the previous wrap funds.

BJM Multi-Manager believes it is usually inappropriate to base investment decisions purely on performance appraisal of the manager over a single one-year period, especially in the equity asset class.

The funds are: the BJM Income Fund, Core Equity Fund, Bond Fund, Property Fund and Prudential Flexible Equity Fund.

Absolute returns, in line with overall industry experience, were negative over the period for the equity, property and prudential classes. However, the core equity strategy was ranked second out of 69 funds in its category, the property fund was third out of 20 peers and the prudential option was fifth in a 27-strong peer group.