As a fund trustee, or the equivalent, within an umbrella fund it is important to remember that real savings are at stake. Behind every rand there is an ID number, so there is a limit to which choice of manager can be a social science experiment.
There is good reason that firms such as Ninety One, Coronation and Allan Gray have such a dominant share of the pensions market. Delivery. Over the past 10 years Ninety One (known until two years ago as Investec Asset Management) has delivered a 12.5% return, second only to Coronation, with which our pension fund is also invested.
I would certainly be an unhappy client if there had been no progress towards diversity. But Ninety One’s core equity research team is 50% black — though perhaps a little light on African black people — and 43% female. Some purists will say past performance should not be a consideration, though they do accept that there is a role for “track record” rather, as those who are opposed to market timing can sometimes be sympathetic to tactical asset allocation.
But the large managers do not have “key man” risk in the way that, say, Counterpoint depends on Piet Viljoen or Aeon on Asief Mohamed. Investec’s core balanced business has a capable ringmaster in Hannes van den Berg, who has unexpected gravitas for a man of just 43 years old. But the team also has an elder statesman in asset allocation tsar Chris Freund.
He has moved up to Johannesburg, where he is better positioned to schmooze with the Reserve Bank and commercial banks to keep up with macroeconomic thinking, a field that is thinly covered in Cape Town. And the core team has three backup portfolio managers, all with 13 years’ experience (and all black) in Sam Hartard, Unathi Loos and Rehana Khan.
Khan acts as the bridge between the core Cape Town team and the large global team in London and Hong Kong, which has more recently built a bridgehead in the US. She argues that it would be far from optimal to plonk 30% of Ninety One Equity, or the institutional balanced fund, into its global counterparts run out of London. Ideally, the foreign allocation needs to include a higher weighting in sectors in which SA is underrepresented, such as technology.
It also gives an opportunity to invest in alternatives to companies that have a unique positioning on the JSE. Recently Ninety One Core has preferred Philip Morris to British American Tobacco. Philip Morris is focused entirely on markets outside the US where litigation risk is far less, and it has also made more progress in nontraditional products such as vapes. Aspen Pharmacare might be a good option in its sector, but it is primarily a generic producer.
Why not invest in businesses with a longer proprietary pipeline such as Roche or Johnson & Johnson (J&J)? There are also unexpected choices in the portfolio. In the global growth sector, dominated by the likes of Facebook and Amazon, is Wuliangye, which makes superior Chinese booze.
The core process is entirely independent of the quality and value processes. But its portfolio, unlike all too many Camps Bay restaurants, is not just expensive and bad. It includes value shares with potential upside such as Absa and Sasol, as well as Capitec, which apparently is the bank with the highest price to book in the world at more than five times. Its key measure is earnings revisions. It looks for opportunities to buy when the market is starting to look overoptimistic and starts to sell when market sentiment changes. But Van den Berg says it likes to call itself “core”, even if it is not as catchy a descriptor as quality or value.
Naspers is no longer in the top 10 in the balanced institutional strategy. Prosus is top, followed by Sibanye-Stillwater, then Anglo American, which was in the top three last year. Just one bank was in the top three in 2020, FirstRand at 1.7% of the fund. Now 9% of the fund comprises (in something of a scattergun approach) FirstRand, Absa, Standard Bank and Capitec.
Ninety One claims ownership of terms such as “bold” and “change”, yet there is something rather cosy and retro about its “local is lekker” strategy. While ambitious financial planners such as Magnus Heystek encourage clients to send all their money offshore the allocation to SA equity at Ninety One Balanced has increased substantially over 12 months, from 36% to 44.5%. The exposure to offshore bonds and cash is now negligible at 2.5%, and offshore equity has fallen from 28.5% to 24.5%.
Of this the largest tilt is towards global cyclicals, such as Taiwan Semiconductor and Tokyo Electron, which supplies parts to semiconductor manufacturers. It also includes shares that have gone through quite traumatic times, such as Volkswagen and Citigroup, JPMorgan’s poorer cousin.
The portfolio has quite an eclectic approach, with a further 34% in the sexy tech (and Chinese booze) shares and a further 21% in defensive compounders, preferring the likes of United Health Group and J&J to more traditional defensives such as Unilever, Nestle and Procter & Gamble, which are now considered frothy. Khan says the best opportunities are when future profits are being revised upwards but shares are still trading at reasonable valuations. Ninety One has invested in sophisticated black box screening tools, but it combines this with old-fashioned fundamental bottom-up research.
Of course, asset managers can get too big and bureaucratic. But the astonishingly energetic CEO, Hendrik du Toit, has maintained an entrepreneurial culture at Ninety One, which in any case is still substantially smaller than the mammoth international firms that have fallen on hard times, such as Fidelity and Standard Life Aberdeen, which recently adopted the ridiculous name of Abrdn.
Schroders in London is the closest role model, though Ninety One has an even higher market share in its SA home market. It does depend on which Ninety One strategy is adopted. John Biccard’s Ninety One Value Fund has had extraordinary long-term performance, but with short miracles puncturing years of mediocre returns. And it does not have a dedicated SA quality fund as there is limited quality exposure on the JSE, though the team’s balanced fund Ninety One Opportunity is a solid performer.
For now Ninety One’s core balanced strategy certainly ain’t broke.
• Cranston is a Financial Mail associate editor.
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