Disciplined approach and diversified portfolio are a winning strategy

[First published in Personal Finance, January 2017]


Raging Bull Award for the Best General Equity Fund on a risk-adjusted basis over five years to December 31, 2016

Out of 94 general equity funds with a five-year track record, the NGI Private Wealth Equity Fund delivered the best return – 18.46 percent a year – over five years. The fund also had the best risk-adjusted returns as measured by the PlexCrown ratings. Over the past five years, the JSE delivered 12.97 percent a year on average.

Fund managers Peter Wille and Leith Wimble attribute their out-performance to a disciplined, valuation-based approach to portfolio management, which has generated attractive relative returns over the past five years.

“The contributors to out-performance included our holdings in Bidvest, EOH, Glencore, Tigerbrands and Imperial,” they say. On the other hand, “the negative contributors included holdings in Woolies, Reinet, Remgro, which was dragged down by its investment in Mediclinic, as well as our underweight position in miners”.

The diversified nature of the fund’s portfolio contributed to its performance in different market environments, according to the managers. “In 2015, international companies like SAB, Reinet and BAT drove the performance on the back of the weakening rand. In 2016, domestic shares were responsible for performance. It was our strategy at the beginning of 2016 to hold on to our domestic shares, despite the negative sentiment at the time following Nenegate. This turned out to be a good decision.

“We kept a significant portion of our portfolio in shares of global companies as insurance. This cost us some performance in 2016, but we believe it was prudent to maintain a level of insurance given the risks at the time,” they say.

The fund is invested in 28 shares currently, but Wille and Wimble say they do not target a specific number. Currently, almost 60 percent of the portfolio is made up of 10 shares, with its biggest holding being Naspers. The fund managers say that position size reflects the risk and return characteristics of a particular share.

On the subject of mitigating risk, Wille and Wimble say “portfolio diversification is important and we seek uncorrelated sources of return. We avoid unintended large sector or macro positions and consider macro exposure (currency, interest rates, and so on) based on input from our asset allocation process.”

Describing their investment philosophy as “long-term investing, well considered”, they believe understanding a company’s quality is critical if they are to have a good handle on its valuation. “This allows us to determine when we are paying a fair price. This, combined with sufficient time (our horizon is three to five years) has allowed us to deliver excess returns.”

Launched in May 2004, the fund is almost 13 years old. Prior to the merger with the Nedgroup Investments Core Equity Fund in November 2015, it was known as the Nedgroup Investments Private Wealth Core Equity Fund. According to the fund’s latest fact sheet, it has R2.3 billion in assets under management.

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