Manager Research

We have recently completed a review of the Rezco fund range and have downgraded the Value Trend, Managed Plus, Stable and Equity funds to Tier 3. We previously rated the Value Trend, Managed Plus and Stable funds Tier 2 and the Equity fund Tier 1.

During our review in 2023, we were able to gain comfort and maintained a positive view on Rezco’s business and significant parts of the team and investment approach. This led to us maintaining positive rating views across the fund range.

Rezco is an independent business with a supportive shareholding structure that creates alignment between investors and the investment team. Rezco’s CIO, Rob Spanjaard maintains a significant stake in the business and is a key individual. Simon Sylvester, Rezco’s CEO is also a key individual with a significant equity stake in the business.

During our last review, we became somewhat more circumspect about the growth trajectory of the business and the headwinds that smaller asset management businesses in South Africa face when trying to reach a sustainable level of assets under management. Ultimately, we continue to view this as a concern and the business has struggled to grow following a weak performance cycle.

Rezco’s independence has been a key element of the business that we have liked primarily because it supported long-term, repeatable investment decision-making. The repeatability of the investment process has been most evident in the South African equity capability where Rezco’s bottom-up fundamental philosophy has driven decision-making, in contrast to offshore equities where significant changes have been made to the investment process. Rezco started to build out and implement their artificial intelligence investment capability (ALIS) in global markets. Over the last five years, ALIS and by virtue, the global investment process has been through several meaningful changes. During our 2023 review, this was something that we highlighted as a concern and was a key determinant in our decision to downgrade the multi-asset funds to Tier 2.

Following our review, we continued to monitor the fund range closely and during our most recent review, we tested the repeatability of Rezco’s long standing SA Equity process and found that it had drifted quite materially from being driven by bottom-up fundamental decisions to more top-down decisions driven by macroeconomics. Rezco has historically adhered to a Growth at a Reasonable Price (GARP) investment philosophy. This philosophy seeks to invest in business which have good growth prospects but are trading at favourable prices, providing the potential for market beating returns.

However, we believe that this has meaningfully changed, and the SA equity investment decision-making framework is now significantly influenced by other non-repeatable factors including macroeconomic views. When equity decision-making is driven by macroeconomics, we typically see high levels of turnover and significant changes to investment views over short periods of time that aren’t primarily driven by price and valuation. We believe we have recently seen evidence of this in the Equity fund. This makes it difficult for us to maintain a positive forward-looking rating view on the SA equity process because we believe that equity investment decision-making frameworks that are overly reliant on macroeconomics are not repeatable and are sporadic.

Ultimately, positively rated funds (Tier 1 and Tier 2) are funds where we believe that there is a high likelihood the manager will add value over an appropriate benchmark and over a suitable time horizon. When we struggle to find repeatability in an investment process it becomes difficult for us to form a positive rating view. Given that the same SA equity process is used within the multi-asset funds, we feel that a Tier 3 rating is applicable across the fund range.

The table below highlights the changes to our current rating views.