The fund, which has declined from having R5.7 billion in assets under management in June last year to R3.0 billion at the end of September is the worst performer in the South Africa multi asset high equity category over one year, three years, five years and ten years.
|Performance of the Nedgroup Investments Managed Fund to 30 September 2015|
|1 Yr total return||3 Yr total return||5 Yr total return||10 Yr total return|
|Nedgroup Investments Managed Fund R||-20.89%||0.04%||2.82%||7.62%|
|FTSE/JSE All Share Index||4.79%||15.38%||14.64%||14.75%|
Returns are annualised
The Nedgroup Investments model is to select top fund managers to manage its branded funds on its behalf. It calls this a “Best of Breed” approach, and currently the managers on its funds include Foord, Abax, Aylett & Co, Prudential and Sanlam.
For the most part its range of funds has performed extremely well, however the Managed Fund has been an extreme outlier as RECM’s deep value philosophy has found no traction in the current market. Nedgroup Investments has therefore been under some pressure to make a change, but had made it clear that it did not want to make a rash decision at the wrong time in the cycle. However, the scale of the fund’s difficulties appears to have finally become too severe.
Head of Nedgroup Investments, Nic Andrew, said that the decision to change fund managers was still a very difficult one to make. He pointed out that they take a long term view when selecting fund managers and understand that even the best will go through periods of under-performance.
“In this case, the extent of the under-performance has been very disappointing for ourselves, RECM and our investors, and much more than we would have anticipated,” he said. “It has been a difficult decision because we are balancing the potential timing of where we are in the cycle against what we think is the best future outcome. In this case, there have been a few changes at RECM, there has been a reduction in assets, and we feel that our clients’ would be more comfortable having their investments managed by Truffle.”
Andrew added that he and many others at Nedgroup Investments have money in the fund themselves, so they share their clients’ interests when making the call about who should be in charge of it.
The change to Truffle
Truffle Asset Management was formed in 2008 by the former CEO of RMB Asset Management, Louis van der Merwe, and the former head of global markets at Nedbank Capital, Hannes van der Westhuizen. They have since assembled a team with extensive financial market and fund management experience.
“With our best of breed process we look for certain characteristics in fund managers that make them natural partners,” Andrew explained. “We particularity like business that are are owner-managed, where the management of the firm invests alongside investors; businesses that are willing to limit the size of their assets to get good returns; and fund managers that have proven long term track records. Truffle has a very stable team that has demonstrated all of those characteristics and with their depth of experience we are just delighted with the partnership.”
Andrew said that Truffle will take operational control over the fund within the next month, and would then start adjusting the portfolio. However, it will take some time to re-align the fund completely as it would be important to ensure that existing clients are looked after and assets are sold and bought at the best possible levels.
Ultimately the idea is to bring the portfolio in line with the Truffle Balanced Fund and merge the two into a single unit trust, dependant on regulatory and unit holder approval. The Truffle Balanced Fund, which was formed in 2011, is currently within the top five unit trusts in its category over both one year and three years.
|Performance of the Truffle Balanced Fund to 30 September 2015|
|1-yr total return||3-yr total return|
|Truffle MET Balanced Fund A||15.91%||18.67%|
|FTSE/JSE All Share Index||4.79%||15.38%|
Returns are annualised
Truffle’s Iain Power will take over as manager of the fund. He has been in the asset management industry since 1993, having spent 16 years at RMB where he was a member of the board of directors before moving to Truffle in 2010.
The CEO of Truffle, Louis van der Merwe, said that it was “an honour” and “quite humbling” to be recognised as one of Nedgroup Investments’ “Best of Breed” managers. He added that the partnership fits perfectly with Truffle’s boutique manager business model in which they aim to outsource as much as possible apart from actual investment management.
“For us to be able to partner with a respected player like Nedgroup Investments lets us concentrate more on what we are best at, which is managing investments,” he explains. “It takes away a lot of the non-competitive side of the business like administration, marketing and distribution.”
He added that the merger of the two funds is the ultimate aim, but it the current priority is to address the Managed Fund’s portfolio to align it with the philosophy they use to run the Truffle Balanced Fund.
“We will be managing the two funds with exactly the same approach,” Van der Merwe said. “It will take us some time to bring the Nedgroup Investments Managed Fund into line, and although I don’t foresee any big issues it will be a process.”
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