Manager Research

We recently completed a review of Nedgroup Investments’ Core Guarded, Diversified and Accelerated Funds and have decided to downgrade the three funds from Tier 1 to Tier 2. In addition, we have also downgraded Nedgroup Investments’ Core Income Fund from Tier 1 to Tier 3.

The primary reason why we have decided to downgrade these funds is because of concerns we have with the investment manager for the Core Income Fund, Taquanta Asset Management (Taquanta). Although Taquanta is not the investment manager for the Core Guarded, Diversified and Accelerated Funds, they are responsible for implementing the investment strategy for these funds and therefore we feel our concerns are also relevant, although to a lesser extent.

We explain our reasoning in this note. However, as a reminder:

• Tier 2 is a positive rating, indicating minor concerns that we intend to monitor.
• Tier 3 is a negative rating, reflecting concerns about the fund’s ability to deliver positive investment outcomes. As such, Tier 3 funds are not currently recommended to clients.

Context: Nedgroup Investments and Taquanta Asset Management

Nedgroup Investments follows a best-of-breed approach across its fund range. This means that they select specialist fund managers across their actively managed fund range, while their Core multi-asset range is a set of passively managed portfolios for unit trust investors looking to access low-cost multi-asset fund options in South Africa. The passively managed Core multi-asset range of funds includes the Core Guarded, Diversified, Accelerated and Global Funds. One of the active funds within the Nedgroup Investments fund range is the Core Income Fund, which is managed by Taquanta. We show this in the table below.

For the Core range (Guarded, Diversified, Global, and Accelerated), Nedgroup sets and takes ultimate accountability for the investment strategy, which is then implemented locally by Taquanta.

Taquanta is an independent firm with over R250bn in AUM, specialising in cash, income, multi-asset, and rules-based strategies. Taquanta originated from Nedbank’s treasury division and became independent in 2007. The team was built under the leadership of Stephen Rogers and Ray Wallace and has demonstrated strong treasury management expertise.

Team and Business Changes at Taquanta

When Stephen retired in 2020, Ray remained as CIO. As part of succession planning, Taquanta acquired Ngwedi Investment Managers, merging teams and gradually transitioning investment leadership to Raphael Ndem (CIO), Monei Pudumo-Roos, Teresa Lu (from Ngwedi), and Charles Allderman and Sharika Salie (existing Taquanta staff).

We are aware that merger and acquisition activity can be disruptive for asset management businesses, but over the last four years we have monitored the transition and have been comfortable with its progression. Recently, Raphael was suspended pending investigation, Monei and Teresa resigned and Ray Wallace has returned as interim CIO.

In our experience, events like these tend to be quite distracting within an investment management company and while we fully believe Taquanta is doing everything they can to mitigate this, we believe a reasonable degree of uncertainty exists, which influences our rating view as a result.

While there have been no changes to the people managing the Nedgroup funds, changes in the broader team/business create areas of uncertainty which we feel should be incorporated in the rating view. These differ across the range due to Taquanta’s role in each of the strategies.

Core Guarded, Diversified and Accelerated Fund Ratings View

These three passively managed multi-asset funds have historically held a Tier 1 rating due to their simplicity, cost-effectiveness, and simple portfolio construction. They remain compelling options for investors seeking low-cost multi-asset solutions.

Jannie Leech, Nedgroup Investments Head of Core Investments, oversees the investment philosophy and process and is ultimately accountable for the investment strategy of these funds.

Given that Taquanta’s primary role is implementation, we believe that our general concerns around the business and team are less impactful in the management of this fund but the changes still create uncertainty and we feel a Tier 2 rating best reflects that view.

Core Income Rating View

In contrast, the Core Income Fund aims to deliver returns exceeding traditional money market funds. The fund allows for longer duration positions when justified, and includes limited credit and liquidity risk. Ultimately, given that Taquanta is the underlying investment manager for this fund and makes active investment decisions we feel that business and team concerns are more acute and this should be accounted for in the rating view.

Summary

Ultimately, the investment outcomes of Nedgroup Investments Core Guarded, Diversified and Accelerated Fund are relatively insulated from the Taquanta business (and relies simply on their ability to implement a low-cost multi-asset mandate), the uncertainty represents a minor concern we would like to monitor. As a result, we still maintain a positive Tier 2 rating on these funds.

We believe Core Income is more exposed to the business and team risk associated with Taquanta, and as a risk-aware mandate, we believe this signifies a material concern, warranting a negative Tier 3 rating. We will continue to monitor developments at Taquanta and reassess our ratings accordingly.

It is important to note that we will actively monitor and process new information as it is made available to us and will adjust our rating view accordingly.

Fund Ratings Summary: Nedgroup Investments Core Range