Manager Research

We recently completed a full review of Rezco's investment capability. While we rate the business and Rob Spanjaard (CIO) highly, we wanted to test whether any internal pressures have been developing in light of relatively weak performance against peers over the last three years. In particular: Any business pressures due to outflows on the back of the weak performance; Turnover in the broader research team and their ability to build continuity in the team; and we wanted to test the depth of their research given the high conviction and seemingly binary nature of their views.

Overall, we were comfortable with their responses and the evidence they provided across our range of questions. From a business perspective Rezco remains profitable despite recent outflows. While a stable or growing asset base is preferable, we are comfortable with the sustainability of the business at these levels.

Turnover in their broader research team has been a concern over the last three years. While the business is able to draw talented, entrepreneurial and differentiated thinkers (they prefer to hire out-of-the-box thinkers from outside the industry), they’ve had limited success in retaining them. Rob is a highly experienced and capable investor and his co-portfolio manager, Simon Sylvester, has been given a broader range of responsibilities to build senior capacity. They have also hired several new analysts bringing the investment team to 8 in total. However, the nature of their investment process requires individuals to have a highly developed “feel” for the market. This is a difficult skill to impart on the next generation and requires substantial levels of experience. We are comfortable that this is demonstrated in Rob and to a growing degree in Simon, but we do need to see stability in the broader team going forward to build a deeper, more mature bench and to reduce key man risk in the business.

We tested several positions and trades in the funds which gave us enough comfort in their depth of research and the level of debate in the team. A lot of effort goes in to idea generation and their process by nature seeks out higher quality businesses trading at lower valuations, resulting in a structurally high margin of safety built into their positions. Also, the number of shares that actually make it into their funds is low (10-15 SA shares in Value Trend) which is evidence that the threshold for inclusion in the funds is high. The result has been a very low error rate in stock selection across their portfolios over time.

Based on our views as discussed above, we have retained Tier 1 ratings across their local fund range: