The Ninety One Managed Fund was launched a little over 27 years ago and Gail Daniel has managed it for most of that time.
She was in charge when the fund was launched in 1994, then moved to another portfolio around the turn of the millennium. She resumed her duties in 2003 and has managed the fund ever since.
This makes her one of the nation’s longest-standing single fund portfolio managers, along with colleagues John Biccard, rated A by Citywire on the Ninety One Value fund, Clyde Rossouw on the Ninety One Opportunity fund and Daniel Sacks. , rated AAA by Citywire on the Ninety One Commodity fund.
The long-term returns that she and her team have generated for investors have been exceptional.
According to Morningstar, there are only 16 South African high-equity multi-asset funds that have 20-year track records, and the Ninety One Managed fund is in the top quartile during that time period. It generated an annualized return of 13.4% for the two decades up to the end of November.
Notably, it is comfortably the best performer among this group of long-standing 10-year and 5-year balanced portfolios. Over the decade, it has brought in 11.7% per year and 9.7% per year for the past five years.
This is a rare level of persistence that also reflects the consistent approach Daniel has taken to managing the portfolio.
“My DNA is in the actions”
“This is a balanced fund, but my focus has always been on stock selection,” said Daniel Citywire South Africa. “My DNA is in stocks, unlike some of the other balanced managers, whose DNA is in bonds.
“And I’m pretty clear on what I’m looking for when taking concentrated equity positions: positive earnings revisions; an evaluation argument; I like that the action is under-owned; and I like that leadership isn’t liked because the market tends to switch between liking and hating leadership, and that’s often a function of headwinds or economic tailwinds more than anything else.
Daniel also sticks to investing in large companies.
“I don’t play small caps because I’m wrong, and when I do, I want a way out. I don’t want to have to pretend I’m right just because I can’t sell the stock.
The international component of the fund is also clearly defined.
“I will always make sure that the international exposure of the fund is as comprehensive as possible, as there are many ways to express an idea in offshore markets. They are bigger and the liquidity is so much better. I also manage this offshore part myself with the help of analysts.
She thinks this is an important differentiator.
“For many managers, the offshore part of their local balanced fund is a portfolio which is primarily managed to be sold overseas or is an offshore fund simply placed in the local fund, whereas I manage the offshore part of the fund with very few actions – 10 to 12 actions. A global equity fund can have 100 or more.
“I am able to take bets on large stocks which can have a significant impact as they have significant weight in the overall portfolio. There is no point in sitting down with a position that will only represent 0.5% in the ultimate portfolio. ”
Return of the drivers
It also means that Daniel is able to use the offshore allocation to supplement the local holdings of the fund, rather than just a generic exposure.
“For example, we can manage a lot of technology in the offshore allocation because a South African investor doesn’t have a lot of exposure to the technology. Health care is also much easier to play overseas, which I have done with some vaccine stocks. Even within emerging markets, you can find these kinds of opportunities. I don’t have much in the fund, but I do well with Russian banks because their mortgage market is growing much faster than ours, and they’ve been raising interest rates faster, which is widening the margins.
This offshore allocation has been a big driver for the fund historically, and Daniel believes that will continue to be the case at least in the medium term.
“I don’t think there is a good structural argument for local actions. They have underperformed for a considerable period of time. They had a massive rebound from last year, but that has run out of steam in recent months. I think the drivers are calming down. If policy tightens in the US, liquidity tightens a bit, that will put the wind in the sails for emerging markets. ”
She added that very few local businesses in the local market have exceeded their cost of capital over the past decade and the environment is expected to remain tough.
“Do I think the cost of capital will go down? No. Local rates will increase with US rates. There is no reason for the risk premium to decrease. And do I think the growth rate will jump in the next five years? No. We only managed to grow at 2% while China grew at 8%. Now China seems to have gone down one level, and that will affect us as well.
“Whichever way I cut it, I can’t come up with a reasonable growth scenario for South Africa. ”
Patrick Cairns is Editor-in-Chief for South Africa at Citywire, which provides insight and information to professional investors around the world.
This article first appeared on Citywire South Africa here, and republished with permission.