Manager Research

We recently concluded our rating review on Denker Capital’s full range of funds. This included both the review of existing funds under coverage and the rating of 2 new multi-asset funds.

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

We have a number of concerns across the business as well as within the various investment capabilities. While we flagged business risks as a potential issue in prior reviews it has now become more significant in our view. The degree of historical business change since Denker Capital was launched and further changes mooted in the latest review process means that we struggle to generate sufficient comfort around what the business will look like in the years ahead.

In addition to the overarching business concerns we note concerns within each investment unit that have resulted in rating changes:

Denker SCI Equity Fund and Denker SCI SA Equity Fund

Relative to prior reviews our concerns around the evidence of skill displayed by the investment team have increased. Over the longer-term the level of value-add that we would expect has not materialised with participation through periods of support for ‘value’ being muted in relation to expectations. There is an additional concern that despite the experience of the key team members they are somewhat stretched to cover the full universe in sufficient depth. Our concerns regarding Denker’s global equity capability remain as notes in prior reviews.

We still see positives for the equity funds, being the institutional knowledge of the SA equity market that the portfolio managers have developed over many years. Additionally, the team is led by dedicated and genuine investors and high conviction is shown in portfolio construction.

These concerns, along with the business concerns raised earlier, result in a downgrade to Tier 3 for both funds.

Multi-Asset Funds

This was the first time that we have covered Denker’s multi-asset offering. The overarching comment is that these funds are early in their development cycle and we expect changes to the process in time. We provide further detail on specific aspects of the ratings outcome below.

Denker SCI Balanced Fund

To be positively rated a multi-asset fund requires a competency to be shown across equity, fixed income, property and cash management (both local and offshore for all) as well as an asset allocation process to put this all together.

This fund utilises the broader Denker business to implement the equity allocation. Both the local and global equity inputs are negatively rated. In addition, the multi-asset team are making equity selection decisions which deviate from the house-view and we have not yet reached point of comfort on this approach. In addition, we have concerns surrounding the coverage of non-equity asset classes as these have not been a historic focus of Denker and we would highlight that asset allocation remains a new process and skillset for Denker to demonstrate proficiency in.

These concerns mean that many of the required competencies are not yet at a level where we can allocate a positive rating to the fund.

Stable Fund

This fund has been derived from a completely different starting point to the rest of the Denker product range. Denker’s core focus is the generation of alpha from bottom-up equity security selection. This fund removes all alpha potential from security selection within equities by using passive building blocks. It is therefore difficult to align this fund to the investment DNA of the broader business. The core competencies required become centred on derivative structuring and index selection. These are not skill-sets in which there has been a clear demonstration of skill or competitive advantage by Denker.

The same comments regarding asset allocation and non-equity security selection that were made for the Balanced fund also apply to the Stable fund. In this case the non-equity selection is even more important due to the increased weighting within the portfolio.

Both multi-asset funds have therefore been allocated Tier 3 ratings to reflect both the concerns raised above and fact that more time is required before we gain comfort in the asset allocation process.

Global Dividend Fund

We have withdrawn the rating on the fund due to the indication from Denker that this fund will be sold-off and the portfolio manager associated with it will be exiting the business.