Manager Research

We recently concluded a review on Prescient’s range of funds which included the initiation of coverage on the Prescient Flexible Bond Fund at a Tier 2 rating. Outside of this new fund rating, we have also upgraded the rating on the Prescient Balanced Fund and moved two strategies to the watchlist.

A summary of the changes can be seen in the table below (new ratings and any other changes highlighted in bold):

Prescient’s business was historically our most material area of concern, given what seemed like consistent changes from an outsider’s perspective. However, since 2018 we have seen a concerted effort to simplify, organise and align the business which is a significant positive looking ahead. Prescient have taken steps to focus on their culture, made changes to remuneration structures, increased product clarity and identified their core competencies as an investment house.

A further positive is the introduction of Bastian Teichgreeber as chief investment officer (CIO). We have rated Bastian highly for a long period of time and can see him being positive for the business and overall investment process. While he has not long been in the CIO role, we can already identify his systematic way of approaching processes pervading itself across Prescient’s various investment teams.

Ultimately, we see the business moving in the right direction, (especially over the past 3 years), but we remain watchful to ensure that the corporate structure and incentives will enable long term investing and success for clients as well as there being continued stability going forward.

In addition to these overarching business comments we provide comments relating to each investment unit below:

Prescient Income Provider Fund

Prescient remains an income centric business with a clear edge in this area of investment. As such we have retained our positive rating for the Prescient Income Provider fund. We are comfortable that the investment proposition is underpinned by a strong risk management process and significantly experienced key decision-makers in Guy Toms and Henk Kotze.

Prescient Flexible Bond Fund

The Prescient Flexible Bond Fund has all the hallmarks of a compelling investment option for clients. The investment process which the fund follows is an extension of Prescient’s strong income capability and its edge is in the high conviction implementation of views which are very flexible. This is not something we really see elsewhere in the industry. The fund has been initiated at a Tier 2 rating to reflect the desire for more evidence of Reza Ismail’s portfolio management ability. The Tier 2 rating reflects that this is a good fund which we recommend to clients but where we have some minor concerns that clients should be aware of.

Reza joined Prescient in 2019 after spending the previous 5 years at Kagiso Asset Management. While Reza comes across as an intelligent analyst, we would like to have more evidence to assess whether he has the required skillset and temperament to manage a fund which has as much flexibility as this. While we understand that Prescient follows a team based approach and that Reza is not left alone to manage this fund in isolation, there is still a degree of individuality in any portfolio manager’s decisions, and as such we require evidence of a portfolio manager’s ability before gaining comfort based upon a positive view on the broader team.

Prescient Multi-Asset Funds

Prescient’s multi-asset offering has evolved over the past few years as Bastian has rebuilt both the process and team. The various multi-asset funds have now been brought into a singular overarching process. This was not always the case and it resulted in funds managed by the same team having fundamentally different starting points.

The multi-asset funds now all start with a sensible strategic asset allocation and then deviate from this only when the team identifies high conviction opportunities. We find that the process is robust, encompasses all major segments and has few observable gaps.  Bastian and his team were impressive in their ability to answer questions and be tested and were also honest about outstanding gaps.  The improvements over the past few years are encouraging. Specifically, the attention to detail, risk awareness and controls are strong. They are operating within their circle of competence (income, risk management and derivatives). In addition, they display a client-centric approach with a proactive view on fees and costs and team culture appears to be building positively.

The key differentiator across the multi-asset fund range is the use of portable alpha to deliver a more consistent alpha profile than peers are able to generate. This means that these funds have a relatively high probability of giving an investor index plus returns rather than the standard index minus costs that a passive option offers. 

When we last reviewed the funds, we held three concerns which resulted in the funds missing out on Tier 1 ratings. Firstly, we needed to see the various parts of the process bedded down over an extended period of time, specifically the tactical asset allocation process. Secondly, we needed to see the same level of diligence that had been applied to the local portion of the portfolio applied to offshore. Finally, there was key man risk in Bastian. The latest review allowed us to reflect upon these concerns and we found that there have been positive developments across all three aspects. There is now more compelling evidence of the value add from the process, the offshore portfolio construction process has been further enhanced and the multi-asset team has been broadened with the announcement of Rupert Hare and Odwa Sihlobo as co-heads of the franchise.

These improvements have resulted in the upgrade of the Prescient Balanced Fund to a Tier 1 rating. Tier 2 ratings have been retained for both the Prescient Absolute Balanced and Prescient Positive Return QuantPlus Funds. We retain some concerns regarding the starting asset allocation structure of these funds and would like to see further evidence of value add from the tactical asset allocation process as it applies to these funds.

Funds moved to Watchlist

The outcome of the review was to move the Prescient Defensive Fund & Prescient Global Income Provider Fund from our rating coverage list to our watchlist. In the case of the Prescient Defensive Fund this was driven by the recent changes to the mandate of the fund as it moved in line with Prescient’s core multi-asset process. We would like to give this time to settle before fully rating the fund. In the case of the Global Income Provider Fund the change is primarily driven by lack of client demand and the fund not matching requirements for a direct offshore mandate. We don’t see the fund as a genuine global fund given its more SA-focused client base and process. The resulting research breadth and depth cause us to be more cautious on recommending this fund to clients.