Manager Research

Coronation announced widespread changes to the fee structures on many of their funds, as well as changes to the benchmarks and mandates on certain funds. The changes are generally positive (but not in all cases) for their clients and a relatively material shift that we suspect may have many South African asset managers revisiting their fee structures. The changes will in most cases result in lower fees through the cycle on the funds and end up with fee structures that are simple and easier to understand. The fees are effective from 1 October 2015 but Coronation will apply the lower of the existing and new fee structures for the first 12 months.

Coronation have sent out a lot of detail on the changes and in the latest Corospondent, Pieter Koekemoer wrote a good summary of the changes.

In this note we look at the changes to the six local funds affected and provide our opinion on the impact on clients. We will look at the changes to the offshore funds separately. All the fees quoted below exclude VAT. Before we turn our attention to the funds, we look at the change in the South African and Global equity benchmarks, which will be applied consistently across all funds where local and global shares are a component of the investable universe.

CHANGE TO LOCAL EQUITY BENCHMARK:
The benchmark has changed from SWIX (FTSE/JSE Shareholder Weighted Index) for the Equity and multi-asset funds and from the Top 40 (FTSE/JSE Top 40 Index) for the Top 20 Fund to CAPI (FTSE/JSE Capped All Share Index).

CHANGE TO GLOBAL EQUITY BENCHMARK:
The international equity benchmark is changing from the MSCI World Index to MSCI All Country World Index (ACWI).

The MSCI World Index by definition has very low Emerging Market exposure (close to zero) while the MSCI ACWI has approximately 13% exposure to emerging markets at the moment. This does make sense given the investable universe and for Coronation, their long track record and expertise in emerging markets means the change in benchmark would fit well with their capabilities.

1. Coronation Equity

Mandate and Benchmark changes:
Coronation Equity has always been a domestic only equity fund, but in line with many of its competitors it will now allow up to 25% in offshore listed equities and a further 5% in African equities. In line with this, the benchmark changes from SWIX to 87.5% CAPI, 12.5% MSCI ACWI (MSCI All Country World Index). The 12.5% reflects the midpoint between 0% and the maximum 25% offshore equity allowance.

Fee changes:
- The base fee remains unchanged at 1.1% for direct (and 0.7% clean through platforms).
- The performance fee sharing rate will increase from 15% to 20%.
- The performance fee cap reduces from 1.9% to 1.5%.
- A new feature of the performance fee structure is that the fee is discounted to 0.75% (0.35% for clean) if returns are below the benchmark over a rolling 5 years.

2. Top 20

Mandate and Benchmark changes:
Coronation Top 20 will remain a domestic only equity fund. The fund has always invested in a maximum of 20 shares representing their top calls in the largest 50 shares by market capitalisation. A proposal has been made to remove the limitation to the top 50 (but this change is subject to investor ballot). The benchmark will change from ALSI to CAPI.

Fee changes:
- Apart from the change in benchmark, there is only one change to the fee structure. The fee has always been discounted down to 0.50% (or 0.1% for clean class) if the fund underperformed over a 2 year rolling period. This has now been changed to 5 years rolling.

3. Coronation Balanced Plus

Mandate and Benchmark changes:
The Coronation Balanced Plus fund uses a composite benchmark: 52.5% equity, 22.5% bonds, 5% Benchmark cash, 20% international. The benchmark remains as is except the equity building block changes from SWIX to CAPI.

Fee changes:
None

4. Coronation Market Plus

Mandate and Benchmark changes:
The Coronation Market Plus fund uses a composite benchmark: 52.5% equity, 22.5% bonds, 5% Benchmark cash, 20% international (made up of 14.5% equity, 3.5% bonds, 2% cash). The benchmark remains as is except the local and global equity building blocks change as described earlier from SWIX to CAPI.

Fee changes:
- The base fee remains unchanged at 1.25% for direct (and 0.85% clean through platforms).
- The performance fee changes in two ways: the performance fee cap reduces from 1.75% to 1.15%; and the net-of-fees fund performance is now compared to benchmark on a rolling 2 year basis (as opposed to a rolling 1 year in the past).
- The old fee structure discounted the fee to 0.75% for retail (0.35% for clean) when the fund return is negative over a rolling 5 year period. This is changed so that the fee is reduced to 0.75% for retail (0.35% for clean) when the fund return is below the benchmark over a rolling 5 year period.

5. Coronation Capital Plus

Mandate and Benchmark changes:
None

Fee changes:
- The base fee is increased from 1.25% to 1.4% for direct (and from 0.85% to 1% for the clean class).
- The performance fee is removed.
- The reduction in fee to 0.75% for direct (0.35% for clean class) remains but in the past this reduction kicked in if performance was negative over 12 months. This has now been changed to 24 months.

6. Coronation Balanced Defensive

Mandate and Benchmark changes:
None

Fee changes:
- The base fee is decreased from 1.5% to 1.4% for direct (and from 1.1% to 1% for the clean class).
- The fund used to charge no fee if the fund had negative performance over any 2 year period. This has been removed, but the reduction in fee to 0.75% for direct (0.35% for clean class) remains if performance is negative over 12 months.