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SA Equity General

In this category, the past 10 Raging Bull winners were as follows:

2006PSG Alphen Growth (Equity)
2007Prudential Equity
2009Allan Gray Equity
2010ABSA Select Equity
2011Marriott Dividend Growth
2012 PSG Equity
2013SASFIN Value
2014MAZI MET Equity
2015Harvard House General Equity

There were 56 funds available in this category at the start of the 10-year period. The strategy in which one switches from one award winner to the next every year would be the most relevant for this study, but I have also taken into account strategies where one invests in an award winner for a longer period (two to five years) so that we can compare shorter and longer-term investment horizons.

Assuming an initial investment amount of R100 000:

StrategyAnnualised 10-Year Return Accumulated Investment Amount after 10 years
Switching every year from one award winner to next14.7% R395 237.95
Switching every 2 years from one award winner to next14.7% R395 644.24
Switching every 3 years from one award winner to next10.4% R267 860.59
Switching every 4 years from one award winner to next11.1% R285 761.09
Switching every 5 years from one award winner to next12.7% R329 922.72
Switching every 7 years from one award winner to next12.1% R312 487.40
Switching every 10 years from one award winner to next10.8% R279 424.42
Top-performing general equity funds over the 10-year period
Nedgroup Inv Private Wealth Equity15.1% R406 429.42
Prudential Equity 14.2% R377 290.37
Foord Equity14.2% R377 156.03
Prudential Dividend Maximiser14.2% R376 431.58
Coronation Equity13.8% R363 554.81
SIM General Equity13.8% R362 753.81
Marriott Dividend Growth 13.6% R357 793.13
Coronation Top 2013.4% R351 344.62
Sasfin MET Equity13.2% R345 600.63
Allan Gray Equity13.1% R343 627.00
Table 1 - Each of the Award Winner strategies would have delivered the annualised 10-year returns above as at 31 January 2016.

Graph 1 – Each stacked bar shows the cumulative over- or under-performance of investment in the equity funds only against the strategies of investing in award-winners only (switching to the next winner every year, two years, three years, four years or five years). We see the qualitatively stronger asset managers (such as Allan Gray, Nedgroup Investments and Sanlam Investments) begin to stand out once investment periods become longer than two years.

Over shorter investment periods (one and two years), we see strategies of investing in award winners outperform the strategy of investing in a single fund over the long term. The strategy of investing in award winners would suit the ‘trading’ investors, but they would also need to deal with the additional costs and taxes involved in trading more frequently. As we move into longer investment periods (three years and greater), which are recommended for equities, we begin to see the strategies of investing in the award winners lose their steam and underperform compared to the strategy of investing in a single fund over the long term. In this category, unit trusts are required to be invested in 80% equities at all times. This means that they have much longer investment horizons, due to the nature of equities, to meet their performance objectives. They would not be able to leave the equity asset class if they cannot find any value or there is a sudden correction or shock. This is why shorter-term investment strategies, and switching more frequently, would not be recommended in this more aggressive asset class.

SA Multi-Asset Flexible

In this category, these were the last 10 Raging Bull award winners:

2006 RMB High Tide
2007 ABSA Flexible
2008 Centaur BCI Flexible
2009 Rezco Value Trend
2010 BlueAlpha BCI All Seasons
2011 PSG Flexible
2012 36ONE MET Flexible Opportunity
2013 36ONE MET Flexible Opportunity
2014 Autus BCI Opportunity
2015 Bateleur Flexible Prescient

There were 29 funds available at the start of the 10-year period. I have summarised the results by comparing the strategy of investing in a single fund over 10 years to the strategies of investing in an award winner over one to five year periods before switching to the next award winner.

Assuming an initial investment amount of R100 000:

StrategyAnnualised 10-Year Return Accumulated Investment Amount after 10 years
Switching every year from one award winner to next12.3% R320 015.87
Switching every 2 years from one award winner to next14.5% R387 775.75
Switching every 3 years from one award winner to next12.0%R311 401.22
Switching every 4 years from one award winner to next13.3% R349 146.83
Switching every 5 years from one award winner to next10.9% R281 716.35
Top-performing funds in multi-asset flexible category over 10-year period
36ONE MET Flexible Opportunity17.4% R498 302.52
Centaur BCI Flexible15.8% R432 513.08
BlueAlpha BCI All Seasons15.4% R419 486.80
Visio BCI Actinio14.8% R396 867.59
PSG Flexible14.5% R388 266.93
Table 2 - Each of the Award Winner strategies would have delivered the annualised 10-year returns in the table as at 31 January 2016.

Looking at the top five funds in the category, we see that they were able to consistently outperform all strategies of investing in the award winners, regardless of when the switches took place.

Graph 3 – The above graph again cumulatively stacks the accumulated invested amount in each fund, divided by each of the strategies of investing in award winners. If the values are positive, they indicate the percentage by which a 10-year investment in a single fund outperformed each of the strategies of investing in the award winners.

In this category, which allows asset managers to switch completely between asset classes, with a maximum allocation to offshore assets of 25%, we can see that a quality asset manager would always be able to outperform any strategy which chases award winners. The rules of the category allow them to choose asset classes they believe have the most value, and to avoid asset classes in which they see no value.

Through this study, we have identified that chasing award winners may provide superior returns over shorter investment periods. However, due to the long-term investment horizons required with the more aggressive funds, we find that the award winner strategies begin to lose some of their momentum as we look at periods of three years or more. This trend is seen in both the SA equity and SA flexible categories. Award winners may be of the highest quality in terms of investment teams, processes and philosophy, but chasing them each year does not lead to consistent, long-term outperformance. At Glacier Research we believe that investing in quality asset managers for longer investment periods, allowing the asset managers to use their skill and expertise to achieve their investment objectives, would be the most successful investment strategy.

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