Manager Research

Clients will be aware that we recently changed the rating on the Nedgroup Managed Fund to Tier 3 and also placed the RECM unit trusts Under Review.  RECM management have now taken some bold steps which will impact the future of the business and also what clients can expect in terms of investment returns. 

Daniel Malan (CIO with over 10yrs at RECM) and a number of primarily operational staff will be departing the business as it aims to course-correct.

Over the course of the past year we became increasingly concerned with the evolution of the investment process and how client portfolios were managed.  In addition the team was needing to stretch to cover the wide range of securities and asset classes and we had concerns around whether they could adequately cover the full investment universe.  In short, we increasingly lacked confidence in the investment management product.

The changes made indicate a level of pressure the business is under, in part due to its particular focus on identifying ‘value’ type investment opportunities.  Over the past few years being a pure value type investor has meant (to RECM at least) taking a large position in resource shares.  These have endured a prolonged period of underperformance, with industrials and financials performing particularly well.  In broader markets (eg the US, where there are more stocks and therefore more opportunities) it is possible to implement a more diversified, yet ‘value’ based investment approach.  This is less the case in South Africa, where there are practically 120 or so stocks which are investable, with the implication being highly concentrated portfolios which may be true to philosophy, but lacking diversification – particularly for more risk averse portfolios.  The other aspect is timing – a typical value investor will tend to be early to buy and early to sell.  In this case, as the current cycle has extended in duration, it has meant that RECM were extremely early to buy, and this problem compounds as the relative underperformance becomes more difficult to recoup. 

Going forward the business does not yet appear to have the investment capability bedded down post the changes – we would expect to see further changes over the near term.  As discussed previously, clients should be aware of the difference between our Tier ratings,  which are a qualitative opinion, and a decision to buy or sell a fund for investors.

The changes at RECM also serve to underline the value in following a qualitative investment approach.  Much of the challenges they now face are a consequence of issues other than simple investment performance, and at times of stress these are shown up.

We will continue to monitor this range of funds and will notify clients of any material changes which may arise going forward.