Manager Research

We concluded on Ninety One's full range of funds last week. The fund manager, manco and platform officially rebranded to Ninety One from Investec Asset Management at the end of March, the final step in its demerger from the bank. The business listed separately in Johannesburg and London on the 16^th of March. You can read more about the rebranding here and our previous commentary provided on the demerger here.

We have made several changes to the ratings across funds, as per the table below:

Ninety One Cautious Managed:

We upgraded the fund to Tier 1. We had two concerns with the fund previously, which have since largely been addressed. Firstly, we were concerned that the portfolio manager, Clyde Rossouw is stretched, given his responsibilities on the Opportunity fund, Global Franchise and his duties as co-Head of the Quality Franchise, with the result being that less focus is directed to this fund. Secondly, we were concerned with the maturity of the fixed income process given that this hasn’t been Clyde’s focus historically (despite him demonstrating a competency for it), and that pricing and decision making for the asset class sits within this team (as opposed to being outsourced to the credit or rates teams).

Duane Cable joined the team as a portfolio manager on this fund and as head of SA quality research towards the end of last year. He came from Coronation where he was a portfolio manager on the Balanced Defensive fund alongside Charles de Kock. While Duane is still new to the role, he brings with him experience that is complementary to this fund and the process. We are also comfortable that the combination of Clyde, Duane and Sumesh Chetty (also co-manager on the fund) provide adequate oversight and focus to the fund.

In addition, we are more comfortable that the team has the necessary capability and capacity to implement a mature fixed income process within the Quality team, with valuable input provided by Simon Howie from the credit team and Peter Kent and Malcolm Charles from the rates team.

Ninety One Diversified Income Fund:

We upgraded the fund to Tier 1. When we initially reviewed the fund, Peter Kent had recently joined Malcolm Charles as portfolio manager in the team. The philosophy and process had also gone through a protracted period of change, from a more contrarian to more momentum-based approach. This approach appeared to shift the focus to trading and reacting to shorter term market moves rather than being based on long term fundamentals. The portfolio managers, while experienced fixed income portfolio managers, had limited experience in multi-asset mandates like this. We needed the process to be bedded down and for the team to demonstrate control over the asset allocation and risk management processes.

The process and philosophy now have a 6-year track record, with the same team in place over that time. We are comfortable that the asset allocation and risk management processes have reached a point of maturity, with sufficient depth in their investment decision making. Credit is outsourced to a very capable team under Simon Howie, which also gives us comfort around the depth of research in that component of the fund.

Ninety One Equity Fund and SA Equity Fund:

This fund has been upgraded to Tier 2. Our initial concerns with the fund were around the ongoing changes to the process following Chris Freund taking over in 2012. The process uses a quantitative screen based on 4 factors (valuations, earnings growth, price momentum and quality), which is then combined with bottom up fundamental research conducted by a team of analysts. The incorporation of the different components should enable the fund to generate consistent outperformance throughout the cycle.

We couldn’t, however, get comfort that the team had adequate control over the process and they had difficulty articulating and demonstrating the investment merit of the process. In addition, the fund added offshore in 2016 (based on a similar philosophy managed by the team in London); co-manager Rhynhardt Roodt moved to the UK to become co-Head of Ninety One’s global 4-Factor team; Grant Irvine-Smith, responsible for the quantitative screen, moved to the UK team to incorporate the SA-quantitative system there; and a new portfolio manager, Hannes van der Berg, joined from Fairtree in 2018.

Despite these changes, the underlying process and philosophy has now largely been consistent since 2013. The process is more embedded, is clearly understood and implemented by the investment team. There is a larger focus on the fundamental research over the quantitative process and the portfolio managers exercise more subjective control, enabling it to be implemented with more pragmatism in SA’s narrow market. There is also a 7-year track record (while still short for an equity process) to demonstrate decision making results.

We still have minor concerns resulting in the fund missing out on a Tier 1 rating. We need to see more stability in the portfolio management team and Hannes needs more time as trigger-puller on the fund. We are also expecting the offshore component to change, which we need to evaluate over time.