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:
Joining Me now, Rico FTA. Head of portfolio Management at innate Invest. Welcome, Rico.

Speaker 1:
Hi. Hello, Chloe. It's great to join you today.

Speaker 1:
So, Rico, before we kick off with your two top fun picks, perhaps we should recap the two funds that you highlighted on the last investment, then

Speaker 1:
yes. Uh, fortunately, both, uh, these funds did relatively well since we last spoke 19 months ago.

Speaker 1:
So it was a truffle truffle's S E I flexible fund a more aggressive portfolio and M. M. G s inflation plus fund, uh, a low equity portfolio. Both of these funds have subsequently outperformed their respective P s by by about 2% per annum. It has been quite a challenging period in the markets. Uh, and the absolute return has been about 8.6% for truffle over the last 19 months per annum and a little bit less for for M and G portfolio.

Speaker 1:
We fortunately, uh, both hold both of these these, uh, funds in our in our in our models and think they can still add a lot of value for us going forward. So, Rico, perhaps you can introduce us to your two new fund picks and how are they appropriate for you in the current Mac macroeconomic environment that we find ourselves in?

Speaker 1:
So I've got two very interesting picks today, and they are both completely different in in risk profile. So But maybe just just to remind you, our investment approach is based on diversification amongst asset managers. So we we believe don't put all your X in one in one basket,

Speaker 1:
so maybe just, uh, just to remind our our our viewers. But the first pick is the Sands Capital Global Leaders Fund, a global equity fund that focuses on on growth shares. Uh, and we've built a 25 year relationship in our business with Sands Capital, and we've been invested with them for seven years in various of our products. The other fund is the more conservative A A absolute, uh, pre fund that our protection on today

Speaker 1:
So focusing then on the Sands Capital Global Leaders Fund, why is this a top pick for you. And perhaps you can speak to the management team and the investments approach?

Speaker 1:
Sure. So between our South African, London and Jersey teams, it is one of our favourite, uh, global, uh, manager picks. And and that's really across the various individuals in our team. It's a fairly large US based manager founded in 1992 by, uh, Frank Sanin. They've got about 200 staff members that fully own the business. This is something we really like in in in asset managers and 69 investment professionals. So quite a large, uh, team focusing on the investment side.

Speaker 1:
So they invest in sustainable above average growth companies. And they do do invest at reasonable prices. They invest in leadership companies. So what I mean by that companies that lead in a specific field or lead in a certain aspect of of growth companies, which gives them a competitive advantage and and also creates a a growth runway for them.

Speaker 1:
And obviously track record is very important. And they've got a long track record of outperforming both the General MS C I, uh, world index as well as other growth. Uh uh, managers and on average, as well as growth indices. But I think what's really interesting about about Sands compared to many other growth strategies is that they've got three buckets that they, uh, use in in investing.

Speaker 1:
So the first one is the growth compounders. That's the core of the the portfolio. It's about just over half of the portfolio. These are the the more steady growth, uh, companies or more, uh, established Visa Microsoft. These type of portfolios, then they have two other, uh, types of growth shares. Cyclical shares and hyper growth shares and hyper growth shares are the disruptors, and that's where they look for the new Amazon or Tesla. So we quite like this balance in balancing approach between the different type of growth shares.

Speaker 1:
Uh, so that's really some of the key aspects of what we we like about science.

Speaker 1:
So then how would you implement the use of this fund? Um, strategically, in your solutions that innate invest.

Speaker 1:
So we've got exposure in the innate, flexible growth model and various other models that, uh, that are built with a high global, uh, exposure. We also in our in our standard multi manager branded, uh, Global Equity Fund, have got a sizable exposure in in in Sands. And they're also a key holding in our various C. I s multi asset. Uh uh, balance fund ranges.

Speaker 1:
We are looking to extend exposure, especially this year, because we think it's quite a good entry point at this point in time. So we are looking to extend, uh, the exposure to to sands further as it just compliments the other funds in our solution so well and provides a growth opportunity that we think is is is very attractive at the moment.

Speaker 1:
Marika. With interest rates so high, how are you finding growth assets performing particularly with this fund concentrated so highly in these growth assets that you've been mentioning,

Speaker 1:
So timing is always difficult, But but, uh, I think there are some tail winds for good growth companies. Uh, so valuations are less stretched than than a year or so ago. Uh, secondly, the the US fed hiking cycle is likely coming to an end. Uh, during the course of the year, uh, with rate cuts expected at some stage in future, that should be quite good for for many of these growth type shares

Speaker 1:
and then shares driven by Inno innovative products or services. Uh, which Sands focus on are not as heavily affected by outside factors in the long term, at least, and yet some of these factors are interest rates, commodities, et cetera. So that's a really great attribute. Uh uh, of these type of shares that sands in invest in. And we think good growth companies are very well placed to produce earnings growth in future, which, which could be quite challenging for various other types of of shares.

Speaker 1:
So now, with regards to E S G, um, Sands has now disclosed on this fact sheet their carbon metrics, which is significantly lower than the benchmark. Perhaps you can take us through the reasoning as to why,

Speaker 1:
yes. So you you often see that with companies, uh, growth type of companies, because many of the, uh, technology type shares in these these funds do have very, uh, good footprints. Um, compared to your energy type of shares. Uh, so that's really why a lot of the metrics that you would see for this type of manager looks looks fairly good. So perhaps you can take us through some of the top holdings in the Sands capital Global leaders Fund?

Speaker 1:
Definitely. Um, so they have some really interesting, uh, top holdings in their portfolio. Uh, you'll see, uh, um, some of the companies like Visa and the top holdings uh, a i A Group Limited. It's Asia's leading insurance company. So big growth region, uh, check and online education company at very affordable prices. And, uh, also an interesting company. They do factory and industrial automatic shift. So it's an amazing team going forward. Uh, active

Speaker 1:
Advanced Driver assistance systems, uh, is built by actors. So autonomous emergency braking, blind spot warning and lane assist. Especially in in this business. There's a lot of a I development currently happening. So a few very interesting, uh, holdings. You'll also see if you look at the fact sheet, uh, a few other names like Formula One, um,

Speaker 1:
Cloud charter communications rent to kill a couple of really, really interesting stops at all. So now focusing on the A a absolute fund. Why have you selected this fund as a top pick? And how has it performed? Um, through various market cycles.

Speaker 1:
So apex is completely different. Uh, to sands. Uh, So, firstly, it's AAA rand denominated portfolio, and it's much more conservative. It sits in the AC, a low equity category. It's a fund that targets inflation plus three over a three year rolling period. And they've got quite a strong focus on on downside protection.

Speaker 1:
So what we like, uh uh, some of the aspects we like about this fund and and this boutique manager. So while they're quite big at 90 billion or just over 90 billion assets and the management A A very much operates like like a boutique manager. So they've got a strong, dedicated investment team, very low staff turnover in their team. I think there's only been

Speaker 1:
two, uh, uh, individuals leaving the team over a long period of time. Uh, they've they've got a high staff ownership in the business, no red act in decision making. And what I also like is they outsource a lot of the non investments functions. So really focusing on the on the key investment part, Uh, of, uh, part of the the business. And lastly, competitive fees, which really helps, uh, performance.

Speaker 1:
Because then perhaps you can take us through some of the fans. Uh, top holdings.

Speaker 1:
Yes. So a B a is, uh, it's really an asset. I think the strength of a A is the asset allocation of of this fund. And if you if we first look at the asset allocation in the portfolio, it's got about 20 to 35% equities ty typically in in this portfolio with

Speaker 1:
the balance between local and and global equities. And they look for also for earnings growth. Uh, but but at goods valuations, now you'll see the likes of Napa popping up in the top 10. Uh, they've got a holding in BT. I one of the other, uh, British American Tobacco, One of the other top holdings, uh, bit,

Speaker 1:
uh, but also, if you if you dig a dig a bit deeper, you'll see some inflation in bonds, uh, in in some of their top holdings. Government inflation in bonds they have over time had high exposure. They trim it and gone into, uh, slightly low or lower duration inflation bonds. More recently, you'll see quite a few, uh,

Speaker 1:
s a government bonds and a sizable exposure to To s a government bonds in the portfolio. And then what? What, uh, you might pick up is quite a high cash allocation. Now, this is an idle cash sitting sitting in the bank. It's it's really floating rate debt, giving you north of 9% return currently.

Speaker 1:
So that forms the core of the portfolio. They've got a sizable global allocation And yeah, especially they're putting on some of the expertise and the rest of the business, Uh, on the from the global Equity fund from the global fixed interest portfolio and building AAA portfolio. Uh, where they've been very successful to in achieving the objectives that they've set themselves over time and and also resulting in very strong risk and return tradeoffs using this this approach over over the years.

Speaker 1:
Because so then, with this fund, how would you implement it into the solutions that you have at in?

Speaker 1:
So this one

Speaker 1:
has got very strong risk return trade off. So you would have seen from the sharp ratios um, drawdown analysis it It really protects very well on the downside. A a great example is in March 2020 at the height of, uh, the covid 19 drawdown,

Speaker 1:
you would have seen that they lost only 3.4% value in the portfolio, whereas all other low equity funds in the industry on average lost about 7%. So it's It's really a very good fund protecting the downside, and you'll see that in the history over time. So we like to use this fund in our low and medium equity portfolios as this defensive portfolio that provides excellent consistency and protection.

Speaker 1:
What we then like to do is blend it with other higher growth, uh, orientated managers or or managers with a bit more spice. If I might call it that, uh, like a but like a truffle or Loris Loris. Flexible funds and these funds provide a

Speaker 1:
a lot of flexibility in our and and a bit more, um, growth for the portfolio. And the combination of a A with these other managers provides an excellent blend for us in the portfolios. But overall, it's a It's a nice core for us in in the portfolio.

Speaker 1:
Rico, thank you very much for taking us through your two top fan picks.

Speaker 1:
Thanks so much, Chloe. And thanks for your time.