Allan Gray leads unit trust companies in latest survey

[First published in Personal Finance, January 2017]

Allan Gray has come out on top in the latest Morningstar survey

by Laura du Preez

Allan Gray has come out on top in the latest Morningstar survey of South African unit trust management companies – just a week-and-a-half ahead of the release of another leading survey of asset managers that forms the basis of the Raging Bull Awards.

Both the Morningstar survey and the PlexCrown Fund Ratings survey of asset managers are released quarterly.

The PlexCrown survey to the end of December determines the winners of at least six of the 10 coveted Raging Bull Awards. The awards will be presented at a gala dinner on January 25 in Johannesburg.

In the PlexCrown survey for the quarter to September 30 last year, Allan Gray was the leading manager of unit trust funds managed from South Africa, followed by PSG and Nedgroup Investments.

Although no one can say with any certainty which manager will take home the coveted Raging Bull Award for the South African Management Company of the Year, Allan Gray’s chances of scooping the award appear strong.

Both surveys use the average scores of the ratings managers obtain for all their qualifying unit trust funds to determine the management company rankings.

Morningstar is a global provider of independent investment research, and it collects data and rates unit trusts around the world. This is its third management company survey for South African managers. The PlexCrown Fund Ratings are a uniquely South African rating that was developed in 2005.

Both rating agencies assign a rating to each qualifying fund of between one, the lowest ranking, and five, the highest ranking, based on the risk-adjusted returns a fund has achieved over different periods. Rankings on risk-adjusted returns take into account not just the returns a fund achieved relative to its peers or a benchmark, but also the risk the fund took to achieve those returns relative to the other funds in the same sub-category.

The surveys of management companies rank managers on their performance across all the funds they offer you, as an investor, giving you a good way to judge whether a manager is a good one overall. Individual managers may, however, be particularly good at managing a specific type of fund.

To determine the leading management company, Morningstar determines an aggregate score in two different ways. The equal-weighted rating uses a simple average of the scores of the manager’s individual funds, while the asset-based rating is based on an average that weights individual fund ratings in line with the amount of money invested in each fund.

Allan Gray was the leading manager in Morningstar’s equal-weighted and asset-weighted rankings (see tables).

Boutique manager Truffle Asset Management was second in the equal-weighted rankings and fourth in the asset-weighted rankings, while Prudential Investment Managers was second in the asset-weighted rankings and fourth in the equal-weighted rankings.

Foord Unit Trusts was third in Morningstar’s equal-weighted rankings, while Prescient Management Company was third in its asset-weighted rankings.

In the PlexCrown survey of management companies for the quarter to September 30 last year, Prescient was second-last out of 17 qualifying unit trust managers.

Truffle and Foord do not qualify for the PlexCrown survey of management companies, because the survey requires managers to have at least one fund in each of four broad unit trust sectors: South African equity and real estate, South African interest-bearing (including multi-asset income), South African multi-asset (excluding multi-asset income), and rand-denominated global and worldwide.

The funds of managers such as Foord and Truffle are ranked in the PlexCrown ratings, and the managers are ranked in the sectors in which they participate, but they do not qualify for an overall rating in the management company rankings because they do not have a fund in each sector.

To qualify for a rating in Morningstar’s management company rankings, a manager must have at least R5 billion in assets under management in funds that can be rated and three funds available to retail investors with Morningstar ratings. Individual Morningstar ratings are based on risk-adjusted returns over three, five and 10 years, weighted in favour of the longer periods. Certain funds, such as money market funds and those with short track records, are not rated.

The PlexCrown ratings are based on four or five different measures of risk and reward over periods of three and five years, weighted to the longer period.

The PlexCrown survey of companies includes only the ratings of funds with a five-year track record, while the Morningstar analysis includes funds with a three-year track record.

When PlexCrown Fund Ratings determines a manager’s overall rating, it first determines an average rating in each of the four broad unit trust sectors from the ratings that a manager achieved for its funds in that sector weighted according to the assets under management in each fund in the relevant sector. 

The overall average rating is determined using each of four broad sector average ratings with the following weightings: South African equity and real estate, 25 percent; South African interest-bearing (including multi-asset income), 25 percent; South African multi-asset (excluding multi-asset income), 35 percent; and rand-denominated global and worldwide, 15 percent.

As a result,  in the PlexCrown survey, the ratings of funds in the sectors with higher weightings exert a greater influence on the overall averages.

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