Manager Research

Coronation recently issued a ballot to investors seeking to change the Coronation Optimum Growth Fund from a directly invested fund to a feeder fund. The fund currently invests directly in underlying securities across the asset class spectrum. The ballot will see this change to being 100% invested in the newly launched Coronation Global Optimum Growth Fund. This being a USD UCITS regulated fund which is registered in Ireland (along with the rest of the Coronation Global Fund Range).

Investors have until the 16th of July to vote on the ballot and, if it passes, the changes will be implemented towards the end of the year. The fund’s name will change to Coronation Global Optimum Growth Feeder Fund to reflect the new fund structure.

It is important to note that the ballot governs the fund structure alone but there is also a benchmark change occurring at the same time (this will occur on the 15^th of September whether the ballot is approved or not). While the objective of the fund will remain the same, the benchmark will change as per Table 1.

Table 1: Proposed Benchmark Changes

Coronation has been discussing the launch of the Global Optimum Growth Fund for a while and the proposal to align the local and global versions of the fund has been expected. The change in benchmark is not expected to lead to a change in portfolio composition or the current investment strategy of the Fund and is consistent with historical asset allocation in the Fund. We have long seen this fund being managed as a global flexible fund rather than as a fund with a clear link to a Rand investor. There is also no change to the portfolio management team or supporting analysts that are accountable for this offering. 

The changes result in an adjustment to the performance fee benchmark of the fund. The change will see the performance fee hurdle moving to the new benchmark as per Table 1. Given that this benchmark is more reflective of the actual manner in which the fund is managed we do think this aligns incentives in a more efficient manner. The change to a feeder fund structure is also expected to provide cost efficiencies of close to 0.08% p.a. to investors through a VAT saving as part of the costs are incurred offshore going forward.

The Feeder fund will charge a base fee of 0.60% at benchmark, with a 20% sharing rate over a rolling 24-month period.  The fee is discounted to 0.45% should there be underperformance over a five-year period.  There is a maximum annual fee of 2%.

The Global Optimum fund will charge a flat fee of 0.95% as a standalone investment option.  This is relatively expensive compared with comparative global equity centric portfolios.

We do not have material concerns with the fund changes and would be supportive of the ballot. The fund will also retain the current Tier 2 rating.