Choosing a fund for the future

This may just be the tip for the future that will substantially contribute to your future success

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Avoiding regret means picking a winning fund in advance It is very common for investors to feel regret at missing out on a massive winner. Looking back, we see investments that have delivered high returns and wish we had the foresight to have spotted the opportunity early on. It’s common for people to invest in these winners late in the day, hoping that the success will continue, or happy to be associated with a success story–even if the gains are in the past.

What is less common is for investors to carefully consider what a great investment looks like before it really performs and gains the glow of success. Often, a great investment’s unpolished early stage attributes leave one feeling slightly uncomfortable–especially the fact that such an investment is very unlikely to be widely held or commonly recommended and discussed. This leads to doubt and most likely a missed opportunity.

The above is true for most great investments. When picking high potential stocks for our portfolios we focus specifically on areas of the market that are neglected or out of favour. This is seldom a comfortable exercise. Too often the popular areas of the market are crowded places where prices are already high, investors are feeling comfortable and good returns are in the past.

This tendency to choose comfort over future potential is especially true when investors choose funds, however.

Looking at which are the largest unit trust funds, it seems that the bulk of investors choose the same comfortable options.

Comfort may be gained from: a trusted brand; compelling advertising; dynamic presentations by articulate, confident professionals; excellent client service; and, most importantly, the feeling that all the smart investors are investing here. There may even be a good long-term historic track record that seems to assure future success.

Unfortunately, these comforting attributes are not necessarily reliable predictors of future success as history has repeatedly shown. We strongly believe that, when you look back in 10 years from now, our funds will have been among the best fund choices to make today. Below, we set out why.

Kagiso Asset Management is well placed to deliver top returns for you.

Our team

Our extensive team of over 20 investment professionals come from diverse and complementary educational backgrounds with deep experience. We have collective experience of over 100 years working together and therefore truly own the track record we show.

Our culture

We operate like a small company, with a flat organisation and an uncompromising meritocracy, but have the resources of a larger organisation given our institutional market scale. Experienced team members are continuously challenged and stimulated to give more and high calibre candidates seek to join our team, attracted by the growth opportunities and the potential to add recognised value early on in their careers.

Our investment philosophy

We focus on valuing expected long-term cashflows rather than predicting the future or reacting to newsflow. We believe excess returns often arise from areas of neglect and disfavour and we particularly aim to avoid crowded optimism. In a world that is obsessively focused on the short term, we believe our long-term orientation enables us to look through the noise of self-reinforcing cycles of enthusiasm or negativity–a robust competitive advantage.

Our discipline

The key to superior performance is positioning differently from the competition and being correct. It is intensely difficult, however, to be contrarian and your emotional resolve is severely tested during the inevitable periods when you may appear to be wrong. Having the discipline and courage to hold your line, backed by rigorous analysis, is a key competitive advantage and we have demonstrated this discipline through many market cycles.

Our organisational alignment with clients

Performance for clients is everyone’s core objective within our firm. This is supported by substantial at-risk, variable compensation based on long-term client outcomes and 49.9% staff ownership of our company.

Our focus on thinking

Having an investment team packed with smart people does not ensure results. They need to optimise their efforts and focus most of their time on thinking about client portfolios. We go to extreme lengths to free up time for our investment decision-makers to think: streamlining and automating our workflow functions, eliminating paper, partnering experienced resources with associates and outsourcing non-core functions.

Our in-house global research

Managing our global exposure ourselves for many years has enabled us to uncover differentiated and attractive investments for our clients and has been a strong source of alpha over time. Additionally, with the majority of the local market’s earnings now generated from offshore, the experience gained from our global research has added invaluable perspective to our analysis of locally-listed stocks.

Our breadth advantage in equities

This advantage stems from the extremely concentrated nature of the South African equity market, where the bulk of the market capitalisation is concentrated in only a small number of the largest stocks. We are able to hold material positions in medium-sized companies without needing to hold a high proportion of their shares in issue. Larger managers cannot avoid having to hold the bulk of their portfolios in large positions in the top 20 to 30 large-cap stocks and attractive mid-cap stocks can never form a large portion of their portfolios. As a mid-sized investment manager, we have the ability to position ourselves very differently to the indices and the larger managers –a substantial competitive advantage.

Our independence

As an owner-managed firm, we are independent of any large institution and are not driven by corporate imperatives that may run counter to client long-term interests.

We offer only a limited product set, in areas where we believe we have an edge and can add real value.

Our large institutional scale

We manage over R40 billion in assets and have a longstanding and substantial presence in the institutional market in South Africa. We are the choice of many sophisticated retirement funds and their institutional consultants. This scale enables us to afford the best investment, compliance and operational resources that are so critical for a modern investment firm.

Our long track-record

The long term evidence our competitive advantage is compelling. Since our inception over 15 years ago, our equity funds have been ahead of the benchmark in all but three calendar years. Our Equity Alpha Fund shows us as the third best general equity manager in South African market since its inception in 2004 (see graph below).

The best fund for the next 10 years?

What matters most in fund choice is who will deliver best for clients in future, not how comfortable and safe you feel now. The best choice may well not be the big brand managers who manage the largest funds that everyone uses.

We strongly believe the Kagiso funds are amongst the best positioned for the future for the reasons above.

This may well be an important investment tip about an early stage investment opportunity that is not widely held.

In 10 years’ time, we hope you will look back satisfied that you had seen our potential. 

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