Manager Research

We recently concluded a review on Sanlam Investment Management’s (SIM) active range of funds. The outcome of this review is that the majority of the fund ratings have been retained at their current levels. The single change has been the adjustment in status for the SIM Top Choice Equity Fund from a rated fund to forming part of our review list where the fund will not be rated but will be reviewed from time to time for updates. A summary of these ratings can be seen in the table below:

The business remains our area of greatest concern with SIM. While at a high-level they have all the hallmarks of a competent asset management business we remain cautious of the impact that future mergers and acquisitions (M&A) could have on both the business and underlying teams. Over the past few years, we have seen continued evidence of SIM being in the headlines regarding potential M&A with both African Rainbow Capital (who are now shareholders in SIM) and ABSA Investment Managers. Concerns regarding M&A stem from the impact that large scale corporate actions can have on a business. We find that change very often creates further change. Team unhappiness can follow corporate action and history is littered with further issues following corporate actions. We need to see the SIM business in a settled state before gaining full comfort on their long-term business prospects and how this will enable or disable strong long term investment propositions.

In addition to these overarching business comments, we provide comments relating to each investment unit below. Even where there were no rating changes there are some points from the review worth noting.

SIM Active Income & Enhanced Yield

We continue to find competent income orientated product offerings from SIM. Credit research has often been an edge for life insurance linked asset managers, SIM is no exception to this rule with their credit research being a key input to the process for both the SIM Active Income and Enhanced Yield Funds. Melville Du Plessis (the named manager for both funds) comes across as a practical and measured investor. We are satisfied that he has built the required experience to manage both the pure income (Enhanced Yield) and multi-asset income (Active Income) funds since the departure of Philip Liebenberg in 2017. Clients should note that the SIM Active Income Fund differs from the peer group in that it does not hold any offshore exposure. This means that the fund will have a structurally lower risk and return profile than peers. SIM have indicated that they are in the final stages of launching a new Active Income Fund which will have the ability to invest offshore.

SIM Inflation Plus

There have been no changes to the fund since it was last reviewed, with the same team and process being in place since 2018.  Clients should expect that this fund will lag peers in bull markets but should protect more on the downside than peers. This was clearly evidenced through the Covid drawdown in the first quarter of 2020. This return is a result of a clear focus on risk first, and then return within this fund.

SIM Top Choice Equity and General Equity

The outcome of the review was to move the SIM Top Choice Equity Fund from our rating coverage list to our review list. The main reason for this was the large degree of turnover seen within the team responsible for the fund over the past couple of years. Patrice Rassou and Charl de Villiers were both key senior members of the equity franchise at SIM. The departure of both to Ashburton has resulted in an inability attach the long-term track record to current team with full confidence. In addition, we struggled to get clear answers to questions relating to portfolio construction from the new portfolio managers.

This reduction in clarity regarding portfolio construction and team turnover means that we cannot recommend either the General Equity Fund or Top Choice Equity Fund to clients with a sufficient level of confidence.

SIM Balanced Fund

This fund remains on our review list. We previously noted material concerns regarding the investment process governing this fund. The underperformance through Covid and over the past 18-months is testament to a process that is still being developed. Throughout this period there has been a change to the hedging structures used within the fund. The fact that this was previously communicated as the fund’s edge raises material questions regarding the investment credibility of this offering. We expect asset managers to be constantly enhancing and refining their processes, but wholesale changes (like this fund has experienced) result in low confidence levels.