Nicolette Dirk, finance writer, Justmoney.co.za
This year, the Sanlam Investment Management (SIM) Industrial Fund was named the best South African equity industrial fund at the prestigious Raging Bull Awards held in Cape Town.
The 18th Raging Bull Awards was held in Cape Town last week to acknowledge the achievements of the collective investment industry in terms of top performers, best risk-adjusted performers and the best unit trust management companies.
The SIM Industrial Fund has been the best performing industrial fund over one, three and 10 years, and the best performing equity fund in South Africa for the past ten years.
Andrew Kingston, portfolio manager of the SIM Industrial Fund said the fund demonstrated Sanlam Investment Management’s strong research capability – performing best in its category over the short, medium and long-term.
“In addition, given the relative strength of industrial shares over the past 10 years, the fund is also the top performing equity fund overall – having posted a compound return of over 25% per annum over this period,” said Kingston.
Louise van der Merwe, financial planner at Wealthup, said the SIM Industrial Fund is highly specialised with a narrow mandate to only invest in industrial shares, with at least 80% invested in the South African market.
“There are only five other funds in this category and over the last 10 years, none of the funds has managed to beat the Industrial Index. That does not mean the managers did not add value over this period. Most fund managers try to reduce the overall ups and downs (measured by volatility) so that investors can enjoy a smoother ride,” said Van der Merwe.
He added that the reason the SIM Industrial Fund probably did well at this year’s awards is due to the fact that it has a much lower volatility.
“The best measure to look at is the risk adjusted return (whereby they take into consideration the volatility of the fund). Here SIM managed to add value but investors would have had the same return,” said Van der Merwe.
Other winners in the best South African Equity Funds category, was the Nedgroup Investments Financials Fund (R Class) for the best South African Equity Financial Fund while Nedgroup Investments Mining and Resource Fund (R class) won the best South African Equity Resources Fund. Nedgroup Investments Entrepreneur Fund (R Class) won the award for best South African Equity Smaller Companies Fund.
Van Der Merwe said equity funds are usually judged relative to their benchmark.
“Outperformance of this benchmark is called alpha and can be attributed to various aspects such as avoiding expensive shares, buying undervalued shares, timing of selling as well as buying shares. Cost difference, different weightings of the shares relative to peers and benchmark also determines performance,” said Van der Merwe.
How the awards are categorised
Awards for asset-specific categories of funds – such as equity or fixed-interest categories – are based mainly on straight performance calculated by ProfileData over a three-year period. Awards for asset allocation funds are mainly made on the basis of their PlexCrown ratings over periods of up to five years, because risk management is a major factor in determining the fund's success.
Awards based on PlexCrown ratings are also made in the major unit trust categories, such as the domestic general equity, the foreign general equity and the fixed-interest bond sub-categories.
How investment funds are judged
Van der Merwe said that when judging any investment fund quantitative and qualitative factors should be considered:
1. The Quantitative Factors:
These are the factors that you can calculate. This includes total return, volatility, maximum drawdowns and many other statistical factors. Looking at the past performance is just not enough.
2. The Qualitative Factors:
These are the factors that cannot be measured, including the way a fund manager operates, their ethics, their investment philosophies, their teams and their remuneration structures.
“From all this information, you will then need to determine if it was generated purely by luck or by skill. This can only be determined over a very long investment period,” said Van Der Merwe.