The top-performing unit trust managers were honoured at the Raging Bull Awards this week, and the winners were often only marginally ahead of the runners-up.
In a closely fought competition, the unit trust fund managers whose funds produced the best performance for you, the investor, were honoured at the "Oscars" of the unit trust industry this week.
Personal Finance and the Association of Collective Investments hosted the ninth Raging Bull Awards dinner in Cape Town on Wednesday night.
The awards were largely based on performance over the three years to the end of 2004. With the exception of unit trust funds invested in foreign markets, the returns were largely buoyed by the good performance of the local equity and bond markets over the past two years.
Many of the Raging Bull Awards and certificates were closely contested, with runners-up missing the winning ranking by a hair's breadth.
The most coveted award, the Plexus Unit Trust Management Company of the Year Award, went to Coronation Fund Managers. The award is made to the unit trust management company that consistently produces good returns across all its funds. Coronation and Investec Asset Management tussled for the top slot in the Plexus survey throughout last year.
After winning the same award in 2003, last year Coronation had to make do with being the runner-up as Investec took the honours.
The Plexus survey is done quarterly, and in the first quarter of last year, Investec was still in the top slot, but by only a slim 0.001-point margin. In the second quarter of last year, Coronation overtook Investec by just 0.07 points. It maintained its place at the top of the survey for the next two quarters - but always by less than one point - to claim this year's Raging Bull Award.
In the popular domestic general equity sector, Old Mutual's High Yield Opportunity Fund (A), was the top performer over the three years to the end of December on straight performance and on Sortino risk-adjusted performance, by a relatively big margin. The fund took the Raging Bull Award in this category for risk-adjusted performance and a certificate for straight performance.
But when it came to the certificate for consistency of performance in the domestic general equity category, the award went to the Futuregrowth Albaraka Equity Fund.
The consistency of performance rankings take into account a fund's performance over a particular period (in the case of this award, three years) for the past 12 quarters. In essence, the three-year consistency of performance ranking measures a fund's performance over the past six years.
The Albaraka Fund has been first, second or third in its category on a three-year performance measure for 10 of the past 12 quarters.
But it had two close rivals: the Oasis Crescent Equity Fund, which has been in first or second position on three-year performance for nine of the past 12 quarters, and the Allan Gray Equity Fund, which has been in first, second or third position for eight of the past 12 quarters.
There was a mere 0.01-point difference between the scores accorded to the Futuregrowth Albaraka Fund and the Oasis Crescent Equity Fund. The two funds are arch-rivals as they are both sharia-compliant funds, targeting Muslim investors.
The two sharia funds and the Allan Gray Equity Fund have all recently turned up at the bottom, rather than at the top, of the performance rankings over the shorter one-year period. However, all three have still out-
performed the All Share index (Alsi), the benchmark for the domestic general equity category, before costs.
Although investors should focus on a fund's longer-term performance, the short-term results of the Futuregrowth, Oasis and Allan Gray funds is a concern for some investors.
James Frater, the manager of the Albaraka Fund, says his fund's recent poor performance is a result of its investment universe. In keeping with its sharia mandate, the fund avoids certain shares in the Alsi and of those in which it can invest, 80 percent are resources shares. Resources shares have been hard-hit by the strong rand.
Similarly, Oasis says that because of its sharia mandate, the Crescent Equity Fund avoided shares in the retail, beverage and financial sectors of the market - precisely the sectors which largely contributed to the performance of the Alsi.
Allan Gray says its investment philosophy is to identify shares that are under-valued and that are expected to return to fair value in the long term. But at the beginning of last year, there were not many differences between the long-term value offered by shares in different market sectors.
In addition, Arjen Lugtenburg, a director of Allan Gray, says the performance of equities last year was largely driven by movements in macro-economic variables, such as the rand exchange rate, domestic interest rates, credit extension and domestic economic growth.
Allan Gray is of the view that it is very difficult to predict macro-economic variables and it prefers to look for under-valued shares.
However, Lugtenburg says, when economic variables and sentiment influence share prices, and especially when there are few differences in the valuations of shares, the company's valuation-based philosophy tends to under-perform over the short term.
Fairbairn Capital's Galaxy Balanced Fund took the Raging Bull Award for top performance on a Sortino risk-adjusted basis in the domestic asset allocation medium equity prudential category - the category in which most retirement savings are invested.
On straight performance, the fund was, however, only ranked fourth, and the certificate for top performance in this category went to the Oasis Balanced Fund, which out-performed the Allan Gray Balanced Fund - last year's winner - by a mere 0.02 percent.
In the domestic asset allocation flexible category, where fund managers have more freedom to move between the asset classes, the Raging Bull Award was given to the Fraters Flexible Fund for its top performance on a Sortino risk-adjusted basis.
The certificate for straight performance in this category went to the RMB High Tide Fund, which out-performed the Fraters Flexible Fund by a mere 0.01 percent over the three years to the end of December 2004.
Currently, 36 foreign collective investment schemes in the global general equity sector have been approved by the Financial Services Board to be marketed in South Africa.
The top performer among them over the past three years on a Sortino risk-adjusted basis (according to Profile Data) was the Investec Global Strategic Value Fund, which took the Raging Bull Award for foreign collective investment schemes.
Next in line was the Oasis Global Equity Fund, which won the foreign collective investment schemes award last year, followed by the Orbis Global Equity Fund (run by Allan Gray's offshore partner), which won this Raging Bull Award in 2003.
Oasis's Crescent Global Equity Fund was ranked fourth among foreign schemes in the global equity sector on a Sortino risk-adjusted basis. As a result of the performance of this fund, Oasis's Crescent International Feeder Fund won the Raging Bull Award in the rand-denominated foreign general equity sector.
The feeder fund invests directly into the Oasis's Crescent Global Equity Fund, but allows South African investors to invest in rands, rather than in United States dollars.
There were record net inflows into the unit trust industry - more than R42 billion - last year, John Kinsley, the chairperson of the Association of Collective Investments (ACI), said at the Raging Bull Awards this week.
The record inflows, together with the good performance by funds, resulted in a 33 percent growth in total assets under management in South Africa, Kinsley said.
He said significant amounts of corporate money are being invested in unit trust money market funds and more retirement funds are investing in prudential unit trusts.
One trend that is worrying the ACI, Kinsley said, is the growth of third-party funds set up by brokers and financial advisers. Fifty of the 101 funds launched last year were third-party funds, he said.
The companies that set up third-party funds are not licensed unit trust or collective investment management companies. Instead, they use the facilities of other licensed unit trust management companies.
In many of these funds, the third party registers as an investment manager and multi-manages the fund, selecting a variety of asset managers to manage the money.
If these third-party funds were properly managed, Kinsley said, all parties - including investors, the advisers and the ACI - would win.
However, in the United Kingdom, many third-party funds had closed shortly after being launched, and the local industry could not afford to go down this road, he said.
The Financial Services Board (FSB) will start licensing hedge fund products within the next 12 months, Dr Cyrus Rustomjee, the chairperson of the FSB, told fund managers at the Raging Bull Awards this week.
Rustomjee, who was the guest speaker, thanked the unit trust industry for its collaboration in drawing up regulations for hedge funds. He urged the industry to move away from using unregulated products as soon as licensing began.
Hedge funds, which are often collective investments, use a number of strategies, which can be high risk, to ensure that your investment earns a positive return regardless of whether a market is moving up or down.
A number of local fund managers currently run hedge funds, but they are not allowed to market them to the investing public. The funds are not illegal, but because they are not regulated, there is no protection for you, the investor.
Rustomjee also told the unit trust industry that the most important issue currently facing South Africa is human resource development. He warned that if this issue was not addressed, the promise of economic growth will be eroded.
Even though the Financial Services Charter addresses black economic empowerment and employment equity, not enough was being done to train people and raise the level of skills, Rustomjee said. He also said he was aware that the Association of Collective Investments had its own charter committee, but said that severe challenges remained.
Rustomjee thanked the unit trust industry for maintaining high levels of disclosure about costs and performance, and said this was valued by the FSB. He also said that it was to the industry's credit that there have been no late trading or market timing scandals in South Africa, as has been the case in other countries.