The ‘next generation’ fund of funds

Paul Wilson, head of research at Sanlam Multi Management.

The Sanlam Multi Managed Balanced Fund of Fund (FoF) holds other regulation 28-compliant balanced (multi asset) funds and does not follow a specialist approach, like many other fund of funds managers. Since October 2014 the FoF has been investing exclusively in skilful asset managers that 1) are still small in terms of assets under management, 2) act with high conviction and 3) are owner managed. We term these the ‘next generation’ managers.

We researched and rigorously investigated more than 80 small managers over a period of nearly three years before we allocated the FoF’s assets to the most sustainable and highly-skilled managers. We feel that this is true value-add in a manager research context and what manager research should be about: finding the hidden gems.

All four of FoF’s underlying managers exhibit slightly different styles, ensuring that investors are not exposed to one style only. This decreases the risk of underperformance when that particular style is out of favour.

The style differences are summarised in the table below.

As shown in the chart below, the Centaur BCI Fund is the most aggressive fund within the Sanlam Multi Managed Balanced FoF, due to its slight momentum bias. It’s also the most unconstrained relative to traditional peer group benchmarks. Obsidian and Truffle’s funds represent the core, as they are more benchmark cognisant than the other two balanced funds, but still high conviction. In addition, the Obsidian and Truffle blend work well, as one has a slight growth bias and the other a slight value tilt. Tantalum is probably the most defensive manager and will be used to protect capital during severe market downturns.

The Sanlam Multi Managed Balanced FoF has been in its current format (with the smaller managers) since 1 October 2014. So, it’s just completed its first full year in the new format and its performance has been in the top quartile over this period.

We are confident that our combination of skilful, differentiated managers, with the large opportunity set in their investment universe, will perform well for investors.