Manager Research

We recently completed a full review of Rezco's investment capability. The outcome of this review is that the fund ratings have been retained at their current levels. A summary of these ratings can be seen in the table below:

While there were no changes to the ratings there are some points from the review worth noting.

In Rezco we find an investment led asset manager where portfolios clearly represent an independent best view. Rezco are unafraid to look different to peers and benchmarks, with their ability to combine clear top-down asset allocation views and bottom-up stock research being relatively unique in the South African market. What sets Rezco apart from peers is their focus on firstly protecting, and then growing client capital. Their focus on risk is accompanied by a strong research process which has resulted in a compelling equity track record. Despite these positives, the review identified some concerns which we note below.

Team Depth and Experience

While we have rated the business and Rob Spanjaard (CIO) highly for a long period of time, we have retained concerns around the ability to build a broader team around Rob. While the business is able to draw talented, entrepreneurial, and differentiated thinkers (they prefer to hire out-of-the-box thinkers from outside the industry), they historically had limited success in retaining them. In the most recent review we found evidence that Rezco have been able to address this concern. There is now evidence of a strong and more stable research team being built out to cover both local and global equities. We put much of this down to the efforts of Simon Sylvester (Head of research) to build out a clear team structure and take on much of the team leadership and management responsibilities.

Despite this increased team stability, the nature of their investment process requires individuals to have a highly developed “feel” for the market. This is a difficult skill to impart on the next generation and requires substantial levels of experience. We are comfortable that this is demonstrated in Rob and to a growing degree in Simon, but we do need to observe deeper levels of experience in the broader team going forward to build confidence that there is a strong bench beyond these two. It is fair to say that our concerns regarding Rezco’s team have reduced but remain on our watchlist.

Offshore Process

Rezco’s global investment process remains an area of concern for us. While they have made efforts to bulk up the team, we have identified that there have been recent changes to the portfolio construction process within their offshore portfolios. These changes have been made in an effort to develop the portfolio management skills of the broader team. This is a positive development for the long-term key man concerns associated with Rob. However, the structure which Rezco has chosen to implement introduces complexity into the overall portfolio construction process and leaves some decisions in the hands of new portfolio managers without evidence of a portfolio management skillset. We will remain close to this process and report back to clients on any changes in confidence level in their offshore offering. In addition to these concerns, we remain of the opinion that coverage of non-equity asset classes in the offshore space could be enhanced.

Use of ALIS within client portfolios

Over the past few years Rezco has been attempting to ‘future-proof’ their business through the launch of a sister company named ALIS. ALIS is, amongst other things, an artificial intelligence (AI) driven investment management company. While we have seen numerous businesses pay lip service to building ‘smart’ investment processes, Rezco has demonstrated a desire to fully back and develop their AI capability. This in and of itself is a positive for Rezco. One of the positive enhancements that ALIS has brought to Rezco is the ability to improve their screening process to generate new ideas in both local and global markets. Our concerns stem from the fact that Rezco began including small allocations to certain ALIS strategies within client portfolios. This was done at a point where we could not generate a sufficient level of comfort in ALIS as a viable investment option. After we queried the allocations to ALIS, and made Rezco aware of our discomfort, they have subsequently removed the allocations from portfolios. We will continue to monitor the portfolios for any evidence of ALIS allocations.

Overall we remain positive of Rezco’s investment capabilities but more wary than before. We will be watching the progression of the team, offshore investment process and portfolio construction.