Quarterly Publication - April 2017
Re-opening offers opportunities - April 2017
In 2012, Coronation closed its South African specialist Equity, Balanced and Absolute Return strategies to new clients. At the time, these strategies represented some 80% of institutional assets under our management. It was a difficult decision, and the scope of the closure was unprecedented in South Africa. Looking back, we believe it was the right call.
The closure was in response to a number of years of exceptional inflows into Coronation portfolios, but enacted before we reached a point where the size of the assets under our management impeded our ability to outperform the market. At the time the decision was taken, we thought it prudent to take action long before our share became disproportionate. As an investment-led firm, we value our track record and our ability to deliver alpha far more than the total assets we have under management.
We always expected to re-open the strategies in due course, given the shrinking formal pension fund market in South Africa. In recent years, assets in these funds have indeed been affected by weak employment amid prolonged economic weakness. In recent years, Coronation has also seen expected outflows materialise.
Careful consideration of the capacity this has created, together with our assessment of market conditions and our five-year forecast of industry trends, has allowed us to re-open our strategies. Coronation remains committed to deliver on the long-term performance objectives of our clients, both existing and new.
PORTFOLIOS AT A GLANCE
The newly re-opened portfolios have delivered strong returns for investors:
Global Balanced strategies
Coronation’s two flagship balanced strategies for pre- retirement investments are the Coronation Global Houseview and Coronation Managed portfolios.
The Global Houseview strategy has been managed by our CIO, Karl Leinberger, since 2005 (Sarah-Jane Alexander and Adrian Zetler are co-managers). The Coronation Managed portfolio is managed by Neville Chester (also since 2005) and Pallavi Ambekar is co-manager.
Both strategies have been ranked as top-performing in their peer group:
The Global Houseview strategy is the top-performing balanced mandate in South Africa since launch, with a 23-year track record of consistent benchmark outperformance over meaningful periods – in all market conditions. It has delivered an annualised return of 16.5% per annum since inception.
The well-diversified portfolio targets long-term growth through an allocation to the most under-valued assets across all asset classes on a risk-adjusted basis, making it ideal for retirement savers. Global Houseview is managed according to the limits of Regulation 28 of the South African Pension Funds Act .
The strategy represents our best investment view for a balanced portfolio in all major asset classes – equities, property, bonds and cash, both in South Africa and abroad. For some time, equities have been Coronation’s preferred asset class for producing inflation-beating returns. We prefer global to South African equities on the basis of valuation. The Global Houseview strategy currently has the maximum allowable exposure offshore.
The Coronation Managed strategy is our most concentrated rand-denominated global balanced mandate. It has delivered an active annualised return of 17.0% per annum since inception, with a 20-year track record of consistent benchmark outperformance.
The portfolio, managed according to the limits of Regulation 28, is characterised by high-conviction calls and the potential for significant benchmark divergence. Given its more aggressive mandate, the Coronation Managed strategy typically has a higher allocation to risk assets and tends to have more concentrated exposures. This has helped drive outperformance over the long term. Currently, the fund has exposure to a number of compelling investment opportunities for those prepared to have a longer-term outlook. The strategy is especially suited to retirement funds, corporate investors, trusts and foundations seeking an actively managed balanced portfolio with a long-term investment horizon.
The strategy is especially suited to retirement funds, corporate investors, trusts and foundations seeking an actively managed balanced portfolio with a long-term investment horizon.
Houseview Equity Strategy
Our flagship specialist South African equity portfolio has delivered a return of 17.7% per year since its inception almost 24 years ago. This secured investors an active return (alpha, or market outperformance) of 2.9% per year. This track record has been produced during various market cycles and periods of unprecedented macro volatility.
The consistent long-term alpha produced by the strategy is unique by local and global standards. We believe this is the result of a disciplined focus on investing only in businesses that are trading at a discount to our assessment of their real long-term value. The Coronation Houseview Equity strategy has been managed by our CIO, Karl Leinberger, since 2005. Sarah-Jane Alexander manages assets within the strategy and Adrian Zetler is a co-manager.
Absolute Return strategies
Coronation was the first manager in South Africa to introduce absolute return strategies in 1999. These risk- managed strategies have maintained a strong track record for almost two decades. The real returns generated by the strategies, managed by Charles de Kock (who has 31 years’ investment experience) and Duane Cable (head of South African Equity), are shown in the following table:
WHAT LIES AHEAD
Coronation’s investment team has enjoyed one of the lowest turnover rates in the industry. We have seen remarkable stability over the past decade, with most of our key portfolio managers remaining in place. We focus on long-term valuations and seek to take advantage of whatever attractive opportunities the market presents us to generate long-term rewards for our investors. This commitment has delivered exceptional returns: more than 95% of our institutional assets have outperformed their respective benchmarks over 10 years and 100% have outperformed their benchmarks over 20 years.
Coronation is a significant manager of retirement savings in South Africa. We are grateful for the loyal support we have received over the years. More than half the institutional assets under our management are from clients who have been with Coronation for more than a decade.
The re-opening of our strategies allows us new opportunities to deliver investment excellence. Over the next few months, we will release Factfiles of our various strategies to re-aquaint you with Coronation's offering. In this edition, we feature Coronation Houseview Equity on page 28. To new clients, the lengthy closure of our strategies shows that we are prepared to make difficult decisions to protect our clients’ interests. We really do put our clients first, and will defend their investment outperformance above all else.