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A multi-manager that outperforms single managers?

04 Aug 11          

Tavonga Chivizhe 

Momentum Best Blend Specialist Equity Fund (A)
Inception:31 Aug 2007
South African Equity
Fund Size:R 1,220.8m
Price Performance
12 months:19.87%
24 months:44.10%
More Details...

According to EFS Investment Solutions data, the Metropolitan Multi-Manager Equity Portfolio has been the best performing multi manager fund in the domestic equity sector for periods of 1 year, 2 years and three years. Liz Still spoke to fund manager Zee de Gersigny.

How long have you been the fund manager of the Metropolitan Multi-Manager Equity Portfolio?

I have been managing the fund since December 2008.

What is the mandate of the fund?

This fund is a general equity fund, but only invests in managers that are generally be regarded as “smaller” or “boutique” managers. This is to take advantage of the opportunity that exists in the small and medium cap shares, which can be more effectively leveraged by boutique managers. There are other advantages that are typically associated with these managers such as employee ownership and a low staff turnover, which are also linked to outperformance .

Could you explain the benefits of multi-manager investing to investors?

There are many benefits to multi management, but the benefits that I think are most relevant to this fund are diversification and rigorous investment process we follow in finding these leading boutique managers.

The benefits of diversification include;  reduced volatility,  improved risk adjusted returns and more consistent perform.

From an investment process perspective, we look beyond the brand of the manager to find skilled managers, with exceptional track records that are unknown in the retail space.

And what are the possible negatives?

The additional layer of fees is often quoted as a possible negative, but in the case of this fund it has TER of 1.2%.

Critics argue that multi-manager funds are at risk of being over-diversified and thereby achieving index-like performance at active fund manager cost levels. Please comment.

Over diversification can be a problem in very large multi managed funds that have exposure to more than 5 managers who invest only in large and mid cap shares. In the case of this fund we only have 3 underlying manager. Each of these managers is benchmark agnostic and typically carries a high tracking error, therefore over diversification is not a problem.

What  is your starting point in the task of assembling a multi-manager fund?

Our starting point is the boutique manager universe. These are managers with less than R5billion in assets under management.

Once you have decided on sector allocation, how do you select the underlying funds?

We are looking for managers with exception track records and a proven ability to outperform the market over time. We do rigorous quantitative analysis on these managers before we meet with them for a detailed due diligence.  In our fund we are looking for boutique managers with a value bias who are experienced stock pickers.

Could you describe the present underlying funds and why you chose them?

Our current line up of managers include:

Aylett Fund Managers – This boutique was founded in 2005 and manages both long only portfolios and hedge funds . The founding portfolio manager is Walter Aylett. Walter has over 15 years of investment management experience. He was a portfolio manager and head of research at Coronation before setting up Aylett Fund Managers. The business consists of 2 portfolio managers and 3 analysts, as well as a very strong back office team.

Aylett Fund Managers are stock pickers by nature. They favour shares that are supported by a strong and sustainable business models, effectively managed and priced well.

Blue Alpha Investment Management – Blue Alpha was founded in 2003 by Uys Meyer. Uys has 17years of investment management experience on both the long only and hedge fund side. He was the cofounder of Decillion in 1996 where he launched the groups’ hedge fund management business and managed this entity until his departure in 2003. Blue Alpha’s stock picking ability  is driven by bottom up company research and a top down overlay. This portfolio has shown exception downside protection qualities in difficult market environments.

Mazi Visio – This boutique is a joint venture between Visio Capital and Mazi Capital formed in 2006. Visio Capital was founded by Patrice  Moyal in 2003 and Mazi Capital was formed by Malungelo Zilimbola  in 2006. They’re overriding investment goal is “To Deliver Positive Returns On Capital Invested Irrespective of Market Conditions”. Their investment decisions are predominantly based on in-depth research of companies and sectors or theme specific fundamentals. They also manage both long only and hedge fund monies and have also demonstrated exceptional downside protection capabilities in difficult markets.

We have segregated mandates with each of these managers. This ensure that the managers are always fully invested as per our mandate and it removes a layer of administration fees that are normally incurred by investing in retail funds, using a fund of fund structure.

The Blue Alpha Fund and the Visio Fund have been market leaders over all periods and their inclusion in the fund can be easily justified. Can that be said of the Aylett Fund? 

Aylett Fund Managers has an exceptional long term track record and is one of the top performing managers over three years. They are also consistently above average over shorter periods. We see this investment track record as being well above average and believe they have a justified place in the portfolio. They also combine well with the other managers in the portfolio.

How do you keep the total expense ratio of the fund down?

The segregated mandate portfolio structure is more cost effective than a fund of fund structure and we do not charge performance fees on the fund.

And finally please could you comment on your market view for the next 12 months or so.

The macroeconomic environment remains precarious and fear is growing in the market, although expected earnings are supportive of a higher overall level on the FTSE/JSE All Share Index. In this environment the true skill of managers will be tested and we believe stock pickers will continue to shine, outperforming cash despite the headwinds.

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