Q3, 2015 Letter to investors
We spend a considerable amount of time and effort researching, thinking and debating how to identify excellent independent managers. We are under no illusions that this is an easy job, or that we will always get it right. What we do hope is that by applying a sensible, disciplined and long-term approach that our range as a whole will deliver for our investors.
In the most recent Personal Finance Plexus survey (end June 2015), Nedgroup Investments was ranked overall second best unit trust company in South Africa and joint top company to offer international funds to South African investors. These awards measure the performance of the entire range over various periods on a risk-adjusted basis, so are a reasonable proxy for how we have delivered for our clients. Despite the continued remarkable performance, we are also conscious that not all funds have done as well as we would have hoped. In particular, the Nedgroup Investments Managed Fund has experienced a sustained period of under-performance. This has been extremely disappointing both for us and clients invested in the fund. We have been actively engaging with the fund manager, both to understand the under-performance and to challenge the robustness and quality of their thinking.
Over the years, we have noticed at various points (normally towards the latter end of bull or bear markets) that different manager’s investment philosophies tend to converge towards the winning philosophies. It is easy to understand why as these managers have, by definition, performed well, are attracting significant flows - which in the short-term can reinforce good performance - and are able, with much credibility and conviction, to rationalise and sell their successful strategies. It is our experience that it is often at exactly these times of concentrated conventional wisdom that it is most useful to challenge managers and their portfolios. In the late 90s there was significant concentration around the explosive growth in the technology sector, in the mid-2000s it was around Chinese growth and the commodity super-cycle and conventional wisdom is currently to buy quality companies with significant free cash flows.
Matthew de Wet writes an interesting article discussing aspects of this and why once a style becomes extremely popular it is unlikely to generate the same superior returns. He also looks at some areas investors can focus on when attempting to look for future outperformance.
Matthew has been with the business for well over a decade and has been Head of Investments for most of that period. He will be leaving the business in the third quarter of this year and will be sorely missed. He has played a significant role in growing and leading the business and we will miss his investment acumen, strategic insight, refreshing honesty, excellent communication skills and his strong desire to always do what is right for the client. He has built experienced and very capable teams and has left the business in an extremely strong position. We are deeply indebted to his contribution, wish him well in his future endeavours and are delighted that he accepted an appointment as a non-executive director of Nedgroup Investments. We certainly hope to continue to benefit from his insight and counsel.
We remind investors of the recent launch of the tax-free investment product and have been very encouraged by the strong take-up. We are very supportive of the initiative and believe they have a place in most investors’ portfolios. Our offering is both simple and cost-effective (no extra costs to a normal unit trust investment). We encourage you to investigate further with your financial planner or on our website www.nedgroupinvestments.co.za. Many thanks for your continued support. It is much appreciated and we will do everything to ensure our service and long-term performance meets your expectations.