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RE:CM Global Feeder Fund: Sensible allocation of capital

18 Nov 11          

Piet Viljoen 

RE:CM Global Feeder Fund
Inception:01 Apr 2007
Global Multi Asset
Fund Size:R 1,015.1m
Price Performance
12 months:-4.50%
24 months:39.93%
More Details...

The RE:CM Global Feeder Fund is a rand denominated fund mandated to invest offshore. Its underlying fund is the RE:CM Global Fund, a global asset allocation portfolio with specific focus on generating long term real capital growth at below average risk levels. Liz Still, Research Editor of PSG Online spoke to senior analyst at RE:CM, Linda Eedes.

The fund, which has assets of just over R250 million is attracting attention due to its solid performance record. If an investor had invested R100 000 in the fund at the launch of the fund in March 2007, the investment would currently be valued at R117 698, compared to the benchmark return (MSCI World Index in Rands) of R99 532.

The fund is managed by Daniel Malan, Piet Viljoen, Wilhelm Hertzog.

The current asset allocation split in the fund is 81.9% equity, 18.8% cash and 1.3% commodity shares. Top ten equity holdings include Johnson and Johnson (7.3%), Berkshire Hathaway (5.3%), BP (5.1%), Wellpoint (4.6%), Microsoft (4.4%), Dell (4.3%), FamilyMart (3.8%) Vodaphone Group Plc (3.8%), Tokyo Gas (3.8%) and Titan Cement (3.4%).

Why do you like Johnson and Johnson, a company with which you have a 7.3% exposure?

What we like about Johnson & Johnson is that it is a very high quality business (high barriers to entry, sustainable competitive advantage and has pricing power) trading at low valuations (i.e. its cheap).

It also has a very well globally diversified revenue stream over 30% of its revenues come from emerging markets for instance. In the current environment, businesses that have strong balance sheets and  revenue streams coming from outside global developed economies are better positioned to weather the inevitable sluggish growth well see from the developed world in the forthcoming years. It also has an attractive dividend yield of 3.5%. This compares favourably to 10 year treasury yields which are currently at around 2%. In an environment where slow economic growth is likely to keep interest rates low.

Your cash levels are still quite high at 16.8%. Does this mean you think true value opportunities are yet to emerge?

Our investment process is entirely bottom-up driven. We look for high quality businesses and only commit capital when they are cheap in absolute terms. If we cannot find enough of these opportunities, we defer to cash. We are constantly on the look-out for such investments, but currently have not found enough of them to fully invest the fund. This is not surprising given that the overall market at the aggregate level is still in expensive territory.

Your one year and three year performances have been wonderful, do you expect that you have now laid the foundations of future outperformance for the next period?

We measure our performance over full market cycles from trough to trough or peak to peak. Three years is not a sufficient time period over which to measure a manager. Our first step towards generating good returns for clients is to protect capital when risks are high.

The three year performance reflects the fact that we very effectively protected capital when the market fell, and then fully invested the fund when the market was cheap and there were plenty of bargains to take advantage of.

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