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Small Caps comes out tops

09 May 2008 Nuraan Adams

Small Caps comes out tops

 

May 8, 2008, Cape Town: Sanlam Investment Management’s Small Cap Fund has once again been recognised as the best overall unit trust by Morningstar, a global investment research house that runs one of the most prestigious unit trust rating agencies.

 

At the awards last night, the fund received awards for being best in sector over three and five years, given its consistently top quartile performance for the past few years. Fund manager Johan de Bruijn attributes the fund’s award-winning performance to a combination of the strong small-cap cycle that has been in place over the past five years and the fund being in the right companies at the right time.

 

“The small- to mid-cap universe is a very wide investment universe and you need to cover a vast number of companies in detail,” he says. “Our substantial research resources enabled us to switch aggressively and early from the retail sector into shares that were likely to benefit from the construction and gross domestic fixed investment boom – a move that contributed handsomely to the performance of the fund.”

 

De Bruijn says the small-cap cycle has since turned and is currently entering a pessimistic environment much like 2001/02. As a result, investors should not expect similar growth rates from the sector. However, he notes: “Where there is pessimism, there are opportunities and I am excited about taking advantage of these. So, while the economy is under pressure and it could take some time to play out, I do expect the Sanlam Small Cap Fund to continue to deliver reasonable growth going forward.”

 

The Sanlam Small Cap fund was not the only fund within the stable that has shown good performance. Over five years, the Sanlam Balanced Fund and the Sanlam Value fund were also acknowledged as being the best in their sectors. Steve Mills, fund manager of the Balanced Fund, says the fund’s great stock picks over the past five years made it an award-winning fund over the period. Investment decisions are based on a value approach, he says, with the research team identifying companies that are mispriced or not fully understood by the market, such as Telkom, Remgro, Standard Bank and Sasol.

 

Presently he has a cautious outlook for equities given the many economic uncertainties that are influencing financial markets locally and globally and, as a result, says it is not the time to increase equity exposure. In fact, investors with a substantial exposure to equities – and who are concerned about potential volatility - should probably consider shifting down the risk curve.

 

Another award winner at last night’s award was the Sanlam Industrial Fund: the top performer in its sector on a risk-adjusted performance basis, over both one and three years. The Sanlam Growth and Financial funds were among the runners-up.

 

Claude van Cuyck, Head of Equities at Sanlam Investment Management attributes the success of the funds to two main elements. “Firstly, we have developed a strong team culture and investment philosophy over the last few years. We have a very skilled research team of 18 fundamental analysts who analyse companies and sectors, covering 98 percent of the JSE market capitalisation. The investment platform is geared to generating new investment ideas and creating alpha opportunities,” he says.

 

“Secondly, there is a sense of ownership among portfolio managers of their own portfolios and these managers are incentivised for good performance,” he says.

 

“In light of the competitive environment that we’re operating in at the moment, we’ve realised that keeping our team motivated and our research relevant, is now more important than ever,” says Van Cuyck.

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