Speaker 0:
with advisors and investors facing a bewildering choice from over 1200 investment funds, we ask South Africa's top fund allocators to share their top tips and ideas to find the winners. Welcome to investment.

Speaker 1:
Hello, and welcome to this investment, then session. I'm joined today by Daniel Schuman, Chief investment officer at Analytics. Multi managers welcome, Daniel. It's a pleasure to be hosting you.

Speaker 1:
Hi, Chloe. Thanks for having me. And, uh, looking forward to the discussion. So, Daniel, um, perhaps you can highlight to us two of your top fun picks that you're using in your solutions at analytics Multi managers.

Speaker 1:
No problem, Chloe, I've selected two funds. The one is central flexible, managed by Roger Williams. And the other one is fair trade managed by boy.

Speaker 1:
Uh, the reason why I've selected these two funds is basically two reasons. First, is they both in the flexible model portfolio? And the second reason is that I'd like to share a story about each of these, uh, funds with you. OK, so you've mentioned that there's a story that you'd like to share, Perhaps we can start off with. Central flexible fund.

Speaker 1:
OK, fantastic. Uh, on Central flexible. I think the story there is, uh, the the headline should be. When I think about this fund, it's a slightly weird but wonderful fund.

Speaker 1:
I'll give you a little bit of context in terms of why I think it's slightly weird. And then also in terms of why, why it's quite wonderful as well. So if I look at the the slightly weird side, we we talk about the fund manager, Roger Williams. So he's quite a unique individual, Um, with his own independent views and his own process that he's developed over over the years. You may know that at Varsity he studied actuarial science, but he was also a very good blackjack player.

Speaker 1:
Um, so so much so that with his winnings, he could actually travel the world for a while before he actually started to work in the investment industry. Um, so to understand, Roger a little bit better, we need to just think about whatever whatever similarities between blackjack and investments, and I'd like to share with you just five of those of those principles. So the first principle is

Speaker 1:
you need to analyse the history. So in blackjack you need to know which cards have been dealt, UH, and which still remain to be played while in financial markets, you need to analyse which factors determine the prices of a share. So Roger in, In In, uh, has developed at Cento has developed a range of models to determine what the optimal benchmark is, uh, which asset, closer to overweight or underweight and which shares to select. So he's definitely analysed the history of financial markets history.

Speaker 1:
The second thing is, you need to have a strategy in in, uh, in blackjack and in financial markets. So in blackjack, you need to know, uh, when to stand, when to hit, when to double down. And Roger has developed a strategy, a process which he calls the centre way. So it's basically a process document that, um, that that talks about all that he's learned through the many years that he's been in financial markets. But it also reminds you that,

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uh, it's not just a process. You also need to apply your judgement when applying that process,

Speaker 1:
and then the 3rd 3rd thing is you need to test that strategy in theory as well as in practise, and you need to continually refine it. And, um, Roger has has done that in spades. He's he's always refining his models. An example that I'd like to give is just, um,

Speaker 1:
one of his models, uh, decides to allocate to either upgrade or underweight, um, S a equities and is based on interest rate levels. Um, and now, with China becoming much more, uh, important in the in the he had to refine that to actually take into account that, uh, the is much more China Centre

Speaker 1:
in the fourth. The fourth principle is

Speaker 1:
in blackjack and in financial markets, you need to manage, manage the money. You need to find that optimal, uh, balance between risk and return. So when you talk to Roger, he's always talking about exposures in terms of uncorrelated positions, in terms of not risking too much on a on a specific position and stress testing, uh, stock ideas.

Speaker 1:
So it definitely takes that into account. And then the last last principle is you need mental toughness as well. So in blackjack, you can lose quite a bit of money before you actually win. And in financial markets, you also you know, you can find that black swan event where you. You need to just trust your process and persevere. So in 2022 Centaur, uh, had a tough year.

Speaker 1:
Um, the winners in 2020 2021 became the losers in 2022. So, uh, Roger and his team, they did trim coming into 2022 but not enough, So they had to. So that's another lesson learned, and a another refining of the process over time.

Speaker 1:
So if you in terms of uniqueness, you've been slightly weird in a good way. Uh, you've got this, uh, Roger Williams that that leads the team at Centre, But then you also have a wonderful part. So the wonderful part is, if you just look at performance of a fund,

Speaker 1:
uh, it's done. If you look at the last 15 years and you look at any one year in that 15 years, you'll find that this Centre Flexible fund has outperformed that benchmark 86% of the time, which is great. And then on a rolling three year basis. In that same 15 years, it's outperformed 99% of the time. So again, that's that's That's quite that's very good.

Speaker 1:
So yeah, so that's That's a story that I wanted to share with you. Thank you very much for sharing that with us, Daniel. So let's get a good understanding. Then how would you use this fund? Strategically, Within your solutions at analytics, this flexible model portfolio sits basically three quarters to the right. So it's a long term capital growth fund, uh, investing in equity centric investments.

Speaker 1:
Um, and this portfolio, this flexible model portfolio we've constructed to consist of, uh, local equities, flexible funds, and then global equity funds and central flexible sits in that flexible, uh, component, Um, and then the the the next fund that I'm that I'm gonna discuss is the fair equity that actually sits in that, uh, local equity component.

Speaker 1:
So you've mentioned now the Fair Tree Equity Fund. Perhaps you can take us through why you've selected this fund as a topic.

Speaker 1:
OK, so fair tree equity, I've got another story to share quickly. So, uh, in terms of fair tree equity in in in this case, when I think of fair tree, I think, uh, I think that sometimes your due diligence really must go quite deep, so deep that you actually have to ask your fund manager. So how many kids do you have? And, uh, let me just explain that a little bit.

Speaker 1:
So just to give you a bit of background on 24 March this year, we received a note from where they said that Stephen Brown, who's a co manager of the fund. He's decided to take a sabbatical or break of six months, starting from March, and then he'll return thereafter to to the firm. So at that stage, we thought, OK, no. Well, that's interesting news. We're definitely gonna monitor this fund quite, uh, carefully.

Speaker 1:
But no, no, uh, issue in terms of, uh, that we need to panic or anything like that.

Speaker 1:
Not long. Thereafter we one of our investment analysts, went to the lunch fair lunch. And so when he came back, we said, OK, so how was your lunch? And he I was I was a stoke. He said, No, it was fantastic. So I said, Hey, how was a meeting? No, it was fantastic. But by the way, they mentioned at Fair Tree at the Fair Tree lunch that, um

Speaker 1:
when Stephen Brown comes back, he may not be a co portfolio manager anymore. he may take a little bit of a step back and, uh, more in a mentorship or a O other strategic type of role. So obviously, needless to say, that was like, um quite a quite an issue. All of a sudden, we

Speaker 1:
we at analytics. When we look at the forms of the fund and and and when it goes through dips, we're not too worried as long as we understand what's driving that. But if there is a fund manager change or a process change, then we jump on that and we try and find out. OK, so what? What, All the issues And, uh, do we need to retain this fund, or do we actually need to, uh, get rid of a specific fund? So what we've always liked about fair tree equity was the fact that core boyson and Stephen Brown,

Speaker 1:
uh, with the co managers of this fund and what we liked about the process is was was that

Speaker 1:
they use a top down macro, uh, bottom up fundamental and then trading as well. If they need to, to trade into an out and out of positions, you know, they've got no issue in in actually doing that. And what we felt was that co both co and Steven,

Speaker 1:
um were very good in terms of the macro and and the bottle up stock picking. But in terms of the trading, we fought that, uh, Stephen Brown specifically had an edge because of his hedge fund experience. So, um, now, with Steve Brown deciding to go on sabbatical and maybe not coming back as a co manager, we wanted two questions answered. So the first question was OK, so who's gonna take Stephen's place?

Speaker 1:
And the second question was, uh, what drove his decision, uh, for Steven to actually take this sabbatical and and step back a bit. So at the at the fair meeting, we we had a meeting with core and the whole of his team and all, and and the first question in terms of who's gonna take Steven's? Um, who's gonna step into his shoes was answered with core saying that

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they've they've got there as the main portfolio manager. They also have, um,

Speaker 1:
Chantal is another portfolio manager. She's been there for a couple of couple of years already, but then they've brought two analysts that's been there for 10 years they've they've promoted them to portfolio managers. And those two. Donald Curtain and Dion Guta and specifically, Dion. He's actually he's been managing a hedge fund for the last two odd years,

Speaker 1:
so he's gonna he's gonna fill fill that gap core is still gonna have veto right in terms of decisions. Um, but he's, he's, he's, he's he's got the backup of all of those underlying, uh, the rest of the team basically as well. So we thought. OK, no, we're relatively comfortable with that. We obviously need to monitor monitor it. But at least that's the answer.

Speaker 1:
And then, in terms of a second question where we said OK, so how did how did um, Stephen decide to actually, uh, go on? The sabbatical course said that Steven has been talking about feeling a bit, um, a bit burnt out in the last year or two. And when he and and and and core were talking, they, they, they they said that, you know, it's around around the age of around 55 years. Um, Stephen is is around 52 now,

Speaker 1:
but at at at an age of around 55 they would start thinking about

Speaker 1:
uh, playing more of a mentorship role and playing more of of a strategist type of role in the in the management of the equity fund.

Speaker 1:
So So we So we So we asked core. OK, so OK, that's great. But how old are you? And Co. Said. Well, he's also 52. So we said, What does? How does that work then? Because obviously not in not the not too distant future. He may face the same type of issue and co said that Well, no, it's, er there is a difference between him and um

Speaker 1:
and Steven. So Stephen's kids are out of school and Steven can actually afford to just take a bit of a step back

Speaker 1:
and, uh, you know, and and not to worry too much, whereas Core, he's got four kids and the youngest is in Grade one, and the oldest is in grade 11. So there's quite a quite a while still for those kids to get to, to to be out of school. And he's he's very committed to fair equity and managing fair equity. He's the only

Speaker 1:
start thinking about maybe stepping a little bit back from age 60 plus But then, uh, the team needs to be obviously settled and the process and all those kind of things. OK, thank you so much for sharing that with us. But Daniel, let's close of the session. I just want to get a little bit more detail on the asset classes and the stock allocation within the fair tree equity, um, fund and what sets it apart.

Speaker 1:
So in terms of the process, I've already talked about the fact that they use macro. They use bottom up stock picking, and they do the trading. So at the moment, if you look at the fund, uh, composition,

Speaker 1:
um, and what they it's a It's obviously an equity fund. So I'll talk about the stocks that they've got in their in their portfolio. So, um, they've they've got quite a chunk to gold shares at this stage. So around 13% of the fund is in gold shares, and that's gold fields, Anglo Gold, um, and Harmony gold

Speaker 1:
And the The reasoning there is obviously with this due political uncertainty and also also with interest rates still moving up in in in in the most of the world, and inflation proving to be a bit stickier than central banks have expected. So you've just got this cloud of volatility and gold. Shares typically do well, and we've seen them do do do quite well.

Speaker 1:
Um, then on China, they're quite positive on China. Still, they think China has recovered a bit slower than expected in the first half. But they they they trusting that the second half will be better, better for China. So they're still holding on to, uh, Napa and process that 60% of a of A fund.

Speaker 1:
Uh, they're still positive on PG MS as well. That's approximately 12% of our fund. So their portfolio is quite a diversified portfolio in terms of those that I've already discussed those stocks, but they've also got some. They call it value shares, but it's obviously the S A Inc type of shares. Retailers, uh, and they also banks. So retailers, retailers, Mr Price, Banks, Capitec, Absa and First Rand.

Speaker 1:
So it's a very diversified portfolio with different return drivers, but it's also a fund that's willing and able to change their direction very quickly. They need to which we, which we've always liked. Absolutely. Daniel, thank you very much for taking us through your two top final perks. We appreciate your time