Speaker 0:
Hello and welcome to this. Boutiques connect. I'm joined today by Gavin Wood, chief investment officer at Casa Asset Management. Welcome back, Gavin.

Speaker 1:
Thanks very much.

Speaker 0:
So, Gavin Casa has recently launched its S a balanced fund. What has been the reason for this launch And how is it differentiated from commis other offerings?

Speaker 1:
Yeah, it's, uh the reason for the launch is that we've had client demand. Uh, you may recall that we launched an S a only equity fund, uh, in the last year or two. And that was also due to certain, uh, asset allocators and multi managers requiring an S a only version of of one of the things we do, which was S a equity announced, a balanced fund,

Speaker 1:
and, uh, some asset allocators and and multi managers and the like Like to have their offshore allocation managed specifically by a specialist offshore manager, uh, often located offshore. And that's the reason they augment this sort of product with specific pure offshore.

Speaker 1:
We at coma do, uh, four things really essentially, and we repackage them in various ways in our various funds. So we try and have a a small number of things that we do, which is really a global equities S a, uh uh, Yield and and and and to an extent, global yield. But it hasn't been much, uh, present there and then asset allocation, which is really mixing those three asset classes together in various risk buckets. And this would really fit into our balanced fund risk bracket.

Speaker 1:
And the difference between this and our normal global balance fund would be that the equity allocation would be exactly the same percentage wise of the fund. But it would be exclusively in our S a equity. Uh uh, allocation. And then the fixed income and yield assets portion would be exactly the same as our normal balance fund.

Speaker 0:
OK, so perhaps looking at the portfolio positioning amongst local and global equities, what has driven the variation in performance? Um, between these two. And how has commis a adjusted, um, allocations accordingly?

Speaker 1:
Yeah, we've, uh the last three or four years had, uh, started probably with with very low allocation to offshore relative to I suppose, the average of of of competitors around about the low twenties. And we saw a lot of opportunity in S a equities. They did really,

Speaker 1:
really well and over the last 18 months or so we really increased our our offshore exposure as an as the allocation call and reduced our local equities. And that proved, uh, good timing in that the the last 12 months or so, our global stock picking has really performed exceptionally well. And, uh, and we can go into a couple of examples there, and our local performance has probably lagged a little bit. Local equities, Uh, as some of the holdings we've had have have have underperformed relative to to the general market.

Speaker 1:
Uh, and so that asset allocation upgrading global has has been, uh, well timed and has really contributed to our our BA balance fund and multi asset class performance. And then more recently, given that relative performance, we've actually reduced global, which I think is quite, uh, a contrarian thing to do at this point in time and increased our local, um uh, equity allocation within our balance fund, uh, offerings.

Speaker 0:
So you mentioned that you take a contrarian approach, which holdings then on the global side, have delivered. And how have you switched for new opportunities?

Speaker 1:
Yeah, So the the in terms of what's worked specifically in the in the global context has been nothing really thematic, but it's been particular stock pick. So if I think about in Europe, we've had quite a high concentration in Europe and a company like Adidas, which is is a company that's gone through some very interesting times over the last year or two and and then a

Speaker 1:
A management change right at the bottom where they've they've really struggled in China. And they've also struggled with, uh, a recall or or an ending of their most profitable, uh, footwear line, uh, with, uh, called. And, uh, and the share price got extremely low and we took a a very large position. That and that and that year to date has been up something like 70%. And we're now completely out of that

Speaker 1:
and then again in in idiosyncratic stock picks. But a company like Panasonic in Japan has done very well for us, and we're much, uh, much reduced in that. And then then the US uh, there there been a variety variety of things that have done well. But for example, uh, something like dupont has been been very, very strong for us, and and we've exited that.

Speaker 1:
And then, uh, in the in the, uh, cloud computing world, we've had big exposure to Microsoft and Amazon, and both of those have done really well, and we we've now got less of exposure there. We still we still retain holdings, and then I, I suppose, on the media landscape, we've had a big holding in in Netflix, which has done really well, and and, uh and we've switched a lot of that, um, out of Netflix and into Walt Disney. More recently, as as Walt Disney share price has been, um, really low. So it's It's one

Speaker 1:
of those things when when you do really well, what you want to be doing is is, uh is taking out of those that have done well in price terms and then putting that capital back to work in in stocks that are really inexpensive. And by that you're you're almost climbing a ladder, uh, and and continuously refreshing the portfolio in, in in in high expectation ideas. And then on the the local side, I think the the disappointments have been in the PGM. Miners have been very weak. Uh, the the the metal prices have been, uh, really low.

Speaker 1:
Uh, and and then a couple of smaller industrials have done, uh, reasonably poorly over the last little while. All for us, I think. Different reasons. Uh, but, uh, in general, I think our local equities have been somewhat weighted towards, uh, those stocks that will benefit from a resurgent China. And China is really disappointed,

Speaker 1:
uh, this year So I think that, uh, we still expect a big rebound from China, but that's been materially delayed relative to to our expectations. And I think most commentators expectations so that as a general flavour of, of what's worked, uh, and and really so at the global side, it's really just specific stock picks that have worked really well. Nothing really thematic,

Speaker 1:
uh, And then locally, it's been, um, some of our big ideas that have temporarily lagged and we're pretty excited about the prospects, and that's why we're up waiting.

Speaker 0:
OK, Gavin. So then, on the yield asset or fixed income side, where are you finding value?

Speaker 1:
Yeah, Therefore, for us, it's quite simple at the moment in terms of our portfolio holdings, and that's really we We we're very positioned on the long end of the South African yield curve. Uh, where we find the the real yields at the long end. Well, over 12. Well, the real yields, uh, well over, uh, sort of 7%

Speaker 1:
uh, 8% very, very attractive, with with long bond yields of of something like 12 12.5% at at times that. That's a very very material. 20 year at times return that you're getting go guaranteed by the the the S a government in an environment where we think inflation is really well managed in South Africa and, uh, the the Reserve Bank is a really credible institution. And we we think in the long term it is likely to be,

Speaker 1:
uh And then I think the debate is what what sort of credit risk Premium one puts on the S a government which is effectively, who you're lending to. And while there is a lot to be negative about, I think that, uh, we think that what's priced into the bond market is is excessive. And, uh so therefore we we think there's there's substantial real yields on offer, and that's where we positioned almost exclusively with very little cash. Very little anything else? Uh, although

Speaker 1:
I must say, with with interest rates in the developed world in particular somewhere like the US having moved up so much, something like the US long bond, the very long bonds, like the 30 years, uh, where they're trading today at at sort of 4.2 ish percent for 30 years in the US is looking a lot more attractive. And if if South African bonds weren't so compelling, we we'd probably be be it be higher in in in some of the global longer bonds.

Speaker 0:
So in order to identify these very niche opportunities that you've mentioned, a team of knowledgeable and skilled individuals is needed. In your opinion, what builds an efficient investment team?

Speaker 1:
Yeah, I think that that we focus on a number of things, and I think the I think what what everybody does in an investment team is to try and put together a bunch of of somewhat diverse in terms of of the the training and backgrounds and the way they think people that are very highly skilled,

Speaker 1:
uh, and to an extent, highly experienced. But I think that's that's sort of an entry to the game. And most strong investment teams have a grouping like that, Uh, that that's that's that's really intelligent and, uh, very well trained and skilled and experienced.

Speaker 1:
But that doesn't, I think, differentiate you. What? What we focus on is is that is almost a starting point and and an entry to the game. As I say, we then try and focus on on on maximising our resources, maximising the brains that live in those those heads, uh, and and optimising the way we work. So I think we focus on a number of things that that are, I think, on the softer side, which which I think are vitally important.

Speaker 1:
And and and I think in a in A in the South African environment, in the investment environment, you're with those smart people you you tend to often get. And we we find this when we interact with our competition

Speaker 1:
a lot of over confidence. And and I think there's there's a lot of group think and a lot of group, uh, action, the way people behave. And we focus a lot on optimising how we think and how we behave. Uh, and and I give you a couple of examples, uh, one of them would be to to, uh, enable within our process and the way we work to have our our people. Our smart people have long, uninterrupted periods where they can just think

Speaker 1:
they don't need to be responsive. They don't need to be, uh, urgently doing something. They can actually just be contemplating the problems at hand and trying to find a CRE creative ideas. Creative solutions to what What problems are are are at hand.

Speaker 1:
And we find that getting into that sort of flow state of thinking, much deeper sense of thinking is something that the modern technology doesn't allow. And and we try to engineer purposefully into our process. Uh, that sort of a, uh uh uh, an opportunity for our people to to to really exercise their brains.

Speaker 1:
Uh, then I I think we focus on things like how we communicate. Uh, we we I. I think it's very self reinforcing how you think and how you communicate. And I think the world of, of, of Corporates and and interacting with Corporates and professionals is has a tendency for, uh, speaking in a in a very similar way and speaking in a in A in A in a almost a a way that loses nuance and and loses with jargon and with

Speaker 1:
with, with sort of suitcase words and with words that have multiple meanings and and and way and and sort of, uh, habits of speaking. People lose nuance and lose subtlety and lose the the the real granularity that is required for really thinking deeply about, uh, investment markets and the economy and what's going on. So we try and focus very much on how we think how we communicate and reinforce that, that reinforcing how we think very specific

Speaker 1:
specifically and in a granular way. And then I think things like how we we are often interviewing people or or or talking to people to elicit information or to get information out. I think there's a there's a real art to how you do that. I mean, you'd know with being a somebody who does that for a living, that there's there's a lot. There's a real art to how to interview somebody and how to stay out of the way and and and allow them to speak more

Speaker 1:
and you, for you to listen and to for you to be responsive in your questioning to start broadly and then to focus narrowly, Uh, later on. I think if if you have too much of an agenda at the start in a conversation, you can effectively reinforce your own ideas and confirm your biases rather than allow the person you're speaking to freely, uh, impart information that some of which may be very, very valuable to you. So those will be some examples of the

Speaker 1:
the sorts of things that are on the nontechnical, uh, non investment specific side that we try and focus on to to really optimise our very scarce resources with scarce time and the scarce time that we have to to to think and and, uh, and and get the most out of our people. So

Speaker 0:
certainly certainly the careful balance between technical and soft skills. On that note, thank you very much for your time. We appreciate your insight.

Speaker 1:
Thank you very much.