Investment management insights - To the end of April 2018 - Momentum Outcome-based Investing
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Investment management insights To the end of April 2018
Contents
Introduction 3
Industry dynamics 4
Persuasively passive and systematically smart 13
Glossary 31
page 2 of 32 Investments I insights | 2018
Introduction
In this issue’s first section, we give a qualitative update of staff The ANC’s elective leadership conference election resulted in
and company changes within the SA investment management Cyril Ramaphosa being sworn in as president in
industry, with factual summaries of what transpired during the February 2018. The markets reacted positively to this change
past year and a quarter. and SA Inc. companies (companies in the retail and banking
sectors) benefited from renewed confidence instilled by the
change in leadership of SA.
In the issue’s second section, we take a closer look at
particular investment managers and we highlight
Momentum Investments. The focus falls on a key component Economic growth and well-being of local and global markets
of our capability set, which forms part of our outcome-based have been perceived as benign by most, but not without systemic
investing approach, namely our systematic strategies and political risk. Since 2018’s beginning, markets have turned to favour the
structuring team. The article covers company structure, staff, active investment managers, as volatility levels and opportunities
investment philosophy and analyses of portfolio behaviours that in share selection have increased – proving the need for
typify those managed by the team. fundamental as well as systematic and passive investment
strategies. The predictability of delivery of these remains
difficult and alludes to the merits of a more robust portfolio
During 2017, low volatility in global markets masked the
construction approach within an outcome-based solution.
uncertainty in the global political arena. The SA equity market
returns were driven by only a handful of shares, such as
Naspers, Richemont, Anglos, Billiton and Mondi. If these were In this issue, we discuss both these investment methodologies,
excluded, or if portfolios had large underweight positions to highlighting some of the main benefits of and the implications
these shares, a sub-par return relative to any benchmark was a for portfolio construction. These aspects are covered in the
certainty. Conversely, if these shares were included in a portfolio context of Momentum Investments’ systematic strategies and
structuring business unit.
as overweight positions, it would have resulted in stellar
outperformance relative to the market. In a normal market
cycle, predictability has proven to be difficult; in these uncertain As always, we emphasise the importance of robust portfolio
market conditions, it becomes almost impossible. The Steinhoff construction – where the understanding and effective
accounting scandal, speculation of misconduct at Resilient, application of asset allocation, investment strategies, factors
real estate investment trust (REIT) misconduct and alleged and their associated risk premia have become a necessity for
corruption at EOH added to the volatility and uncertainty. more effective delivery on client outcomes in the longer term.
Uncertainty from mounting pressures of SA’s unfavourable It is our aim that you gain insight into the investment industry’s
budget deficit, an impending credit downgrade and the ANC’s dynamics and changes, as well as have a better understanding
of our systematic strategies and structuring team, our
elective leadership conference saw active investment managers
overarching outcome-based investing philosophy and the
positioning their portfolios for a binary outcome. In these
workings of passive and smart beta portfolios.
uncertain times, investment custodians were looking beyond
the traditional fundamental active investment approach, shifting
their interests to passive and ‘smart beta’ Eugene Botha
investment methodologies. Deputy Chief Investment Officer (CIO) of
Momentum Investments
Investments I insights | 2018 page 3 of 32
Industry dynamics
Tatjana Raunich | Qualitative Research Analyst
An overview of industry changes (during 2017 to the end of April 2018)
within the investment management landscape is discussed below, relating to
the business/human capital.
36ONE Asset Management In April 2018, Ntobeko Stampu resigned from his position as
Louis Kruger joined 36ONE during September 2017 and portfolio manager on the Absa Absolute Return Portfolio, after a
replaced Nico Smuts, as portfolio manager in the hedge fund year of assisting in the realignment of the portfolio. Stampu will
space (Smuts left 36ONE in June 2017 for the UK). Kruger be relocating to Cape Town in the near future.
articled at Arthur Andersen and KPMG, after which he joined
AMB Capital, where he assisted in starting the investment Kanyisa Ntontela was appointed in October 2017, as
manager’s hedge fund offering. At the end of 2010, he left AMB analyst/portfolio manager at Absa Asset Management, where
to start G3 Fund Management with the ex-AMB hedge fund team. her responsibilities extend to fundamental analysis of equities
on the absolute return portfolios. Previous positions held: equity
Abax Investments analyst at Perpetua Investment Management, where she was
for two years, and, before that, at
Philip Liebenberg joined Abax in August 2017, as part of the
Investec Asset Management, Absa Capital Securities and
investment manager’s multi-asset class team. He co-manages
Oasis Asset Management.
the Abax Absolute Prescient Fund with Rashaad Tayob.
Before this, Liebenberg worked at Sanlam Investment
ALUWANI Capital
Management, where he was head of absolute return mandates
and the portfolio manager of the investment manager’s During July 2017, Stephen Charangwa decided to leave
absolute return portfolios. Liebenberg has 18 years’ investment ALUWANI in pursuit of other opportunities, based on
experience and holds a PhD in Chemical Engineering and is a ALUWANI’s decision to close its Africa (excluding SA) fixed
CFA charter holder. income capability. This resulted from lack of local market
demand, despite ALUWANI’s belief in the long-term
diversification benefits derived from this capability.
Absa Asset Management The investment manager will, however, continue to be active in
During April 2017, it was announced that Errol Shear resigned and grow its Africa equity and multi-asset class capabilities.
from Absa, after 11 years with the investment manager, since
joining Abvest, as chief investment officer (CIO) in 2006. During 2017, Tebogo Naledi resigned from his position as chief
His roles at Absa included chief investment strategist and operating officer (COO) of ALUWANI for personal reasons.
head of the absolute franchise. Eben Mare continues the
management of the absolute franchise. Mare joined Absa in During September 2017, Jason Hall, which was the head of
January 2016, as head of fixed income. Previously, he managed credit and a portfolio manager in the fixed income team under
about R10 billion in absolute return investments with inflation Conrad Wood, resigned, embarking on an entrepreneurial
plus 3, 4, 5 and 6 mandates. Mare has held a number of senior
venture of his own.
positions in the financial markets in the past 26 years and holds
a PhD in Applied Mathematics. He was assisted by
In March 2018, Mamokete Lijane, ALUWANI’s macro strategist,
Ntobeko Stampu, who joined Absa during 2017 from the South
resigned to pursue other opportunities within the banking
African Reserve Bank (SARB), where he worked as a senior
sector. Lijane will not be replaced, instead, the company intends
fixed income portfolio manager. After more than 15 years in the
to recruit a fixed income strategist, who will focus on the fixed
investment industry, he has occupied many senior positions
income team and enhance the succession planning within
at industry-leading organisations, as a proprietary trader,
the team.
quantitative analyst and absolute return portfolio manager.
page 4 of 32 Investments I insights | 2018
Ashburton Investments position as head of business development at Excelsia Capital.
During the first quarter of 2018, Ashburton decided to streamline He was the chief executive officer (CEO) at Maru Asset Managers.
its investment management business and focus on transformation.
Coronation Fund Managers
The CIO of Ashburton, Paolo Senatore, stepped down from At the beginning of 2017, Coronation promoted three of its senior
this position after 20 years of service at the FirstRand Group, in analysts to co-portfolio manager roles on a number of the investment
pursuit of other interests in the investments industry (outside of manager’s flagship strategies. As part of the multi-counsellor
the group). approach adopted by Coronation during 2015 and 2016,
Sarah-Jane Alexander and Adrian Zetler were appointed
Nkareng Mpobane, previously deputy CIO, was promoted to co-portfolio managers on the Coronation house view equity
CIO of Fund Management for Ashburton Investments and his and balanced portfolios alongside Karl Leinberger. Leinberger
custodianship encompasses the long-only portfolio range of SA, retains ultimate responsibility for the portfolios. Nic Stein was
Jersey and Luxembourg. Over time, a CIO of Private Markets appointed co-portfolio manager of the Coronation Aggressive
will be appointed – the scope of custodianship encompasses the Equity Strategy alongside Neville Chester and Pallavi Ambekar.
unlisted asset classes. Chester retains ultimate responsibility for the portfolios.
BlueAlpha Investments Alexander joined the Coronation investment team in 2008,
as an equity analyst. Her responsibilities, among others, also
Walter Jacobs joined BlueAlpha during June 2017, as portfolio
include the co-management of the Coronation Industrial
manager. His previous employment included PPC and
Barloworld from 1997 to 2002, where he was involved in various Fund. Previously, she formed part of the investment team at
strategic projects, including target setting, valuations and capital JP Morgan Asset Management in London, where she was a
allocation. Thereafter, he joined Credit Suisse, where he ran European research analyst and then co-portfolio manager of its
in-house valuation training and worked with several of SA’s UK Smaller Companies Fund. She has 13 years’
leading investment managers, helping them understand the investment experience.
operational performance and valuation of listed and unlisted
companies. He is also a guest lecturer at UCT’s Graduate School Zetler joined Coronation, as an equity analyst in July 2009.
of Business. His responsibilities, among others, also include co-management
of the Coronation industrial collective investments scheme.
Cachalia Capital Before this, he completed his articles with
During April 2018, Cachalia Capital announced the appointment PricewaterhouseCoopers (PwC) in Cape Town and then
of Naweed Hoosenmia, as portfolio manager, who is working worked as a valuation specialist with PwC in London within
alongside Mashuda Cassim (founder and portfolio manager). the company’s financial services division. He has seven years
Hoosenmia, previously employed at STANLIB Multi-Manager, investment experience.
where responsibilities included portfolio management and risk
analysis, and Eminence Partners, (a Johannesburg-based
Stein joined the Coronation investment team in 2009, as an
long/short equity hedge fund operated under the Peregrine fund
equity analyst. His responsibilities, among others, also include
platform), where he held a position as portfolio risk analyst.
the co-management of the Coronation Multi-Strategy
Excelsia Capital Arbitrage Fund as well as the Coronation resources collective
During the first quarter of 2018, William Moutloatse took up the investments scheme. He has eight years’ investment experience.
Investments I insights | 2018 page 5 of 32
Element Investment Management In addition, Balkin’s sole focus is on SA portfolios and he
During 2017, Andrew Bishop was promoted to position of joined the SA multi-asset class portfolio team of Foord,
portfolio manager from his role of equity investment analyst. Owen and Fraser.
He shares joint responsibility for managing Element’s equity • The Foord International Fund continues to be managed by
portfolios. He joined Element in 2008 and previously worked for Foord and Brian Arcese, with no changes expected.
Deloittes, where he completed his articles. He has a Bachelor of • The net effect is as follows:
Business Science (Honours) from the University of Cape Town
- SA-equity multiple-counsellor: Daryll Owen,
and is a CFA charter holder.
Nicholas Balkin and Dave Foord
- SA-multi-asset class multiple-counsellor: William Fraser,
Fairtree Capital Daryll Owen, Nicholas Balkin and Dave Foord
In the second half of 2017, Paul Crawford, Fairtree’s fixed
income portfolio manager, moved to London to setup Fairtree’s
Investec Asset Management
London office.
At the beginning of 2017, Rhynhardt Roodt, who was
previously co-head of Investec’s equity and multi-asset class
The Fairtree London office will broaden the client base, team (SAE&MA team) with Chris Freund, was promoted to
attracting European and UK investors.
co-head of Investec’s 4Factor Team. The SAE&MA team was
simultaneously integrated into the 4Factor team, following
Foord Asset Management the general trend at Investec, where investment teams are
Foord announced Dane Schrauwen’s decision to take sabbatical becoming more globally integrated. 4Factor and SAE&MA share
leave in January 2017, due to health reasons. In June 2017, it significant philosophical and process overlap, as both processes
was communicated that Schrauwen would not be returning combine factor-based screening with bottom-up fundamental
to Foord and would be taking early retirement. He was one of analysis. Freund continues to lead the SAE&MA team, but
the co-portfolio managers on the equity and multi-asset class within the broader 4Factor team.
portfolios. Upon application for his sabbatical, the optimality of
the investment manager mix was reviewed, taking into account
This resulted in the following portfolio management changes:
the skill set available and capacity utilisation of individual
portfolio managers. These changes remained in place after • Roodt became co-portfolio manager of the 4Factor global
Schrauwen’s departure. The arrangements made to supplement core equity portfolios, together with Jonathan Parker.
the South African multiple-counsellor investment manager mix • Samantha Hartard became co-portfolio manager of the
during 2017 were as follows: local general equity and balanced portfolios, together with
• William Fraser re-joined the multi-asset class portfolios Roodt, Freund, Grant Irvine-Smith and Rudi Naumann.
team (with Dave Foord and Daryll Owen). Hartard is also sector head of industrials and has nearly a
decade of investment experience.
• Foord re-joined the SA equity portfolio manager mix
(with Nick Balkin and Brian Davey). Foord has always been
co-portfolio manager on the multi-asset class capabilities. The rest of the SAE&MA team remained unchanged, led by
• Mike Townshend has had shared responsibility for the Freund, who is supported by 17 analysts and portfolio managers.
management of personal investment portfolios with Davey As co-head of the overall 4Factor team, Roodt continues to
for the past five years and has built good relationships with provide process and team oversight across the
these investors. Townshend returned to SA in the latter part SAE&MA portfolios.
of 2017, from a two-year secondment to Foord’s Singapore
office, to assume the leadership of the personal investment James Hand relinquished his role as co-head of the
portfolio initiative before Davey’s retirement in March 2018 4Factor team. However, he continues his work within the
(after 23 years with Foord). CIO office, together with Mimi Ferrini and John McNab, where
• At the beginning of 2018, Owen joined the SA-equity he focuses on process reviews and research work. While Hand
multiple-counsellor (with Balkin and Foord) portfolio remains involved with the firm, the amount of time he works
management team, replacing Davey’s function in this space. was reduced from October 2017 onwards.
page 6 of 32 Investments I insights | 2018
During April 2017, Investec announced the appointment of Thomas is also a member of the Institute of Chartered Accountants
Hannes van den Berg, as co-portfolio manager to the SA equity of England & Wales (ACA) and holds a diploma in advanced
and multi-asset class team. Van den Berg has over a decade of South Africa banking law (cum laude) from the
investment experience, having started his career at Fairtree Capital. Rand Afrikaanse University.
Before joining Investec, he was co-portfolio manager of the Fairtree
Relative Value Market Neutral Equity, Relative Value Long/Short At the beginning of the third quarter of 2017, Paul Robinson,
Equity and Directional Bias Long/Short Equity Funds. head of Africa (excluding SA) research was appointed as
co-portfolio manager of the Limpopo Africa Fund, managing this
During September 2017, Khaya Gobodo’s departure from Investec portfolio alongside Gavin Vorwerg, who has been the portfolio
was announced. He decided to pursue the opportunity of deputy manager since its inception. Robinson has six years’ experience
managing director at Old Mutual Wealth & Investment. His role in markets and investments, including working for Merrill Lynch
at Investec included a leadership role in the investment manager’s in London and Citibank in Dubai. Before joining Laurium in
Africa business, and he was also a strategy leader within the quality February 2009, he worked for Ralk Capital, a Johannesburg-
capability during the past three years. Gobodo left on good terms. based hedge fund, for two and a half years. Robinson holds a
BSc and an MBA. He also spent four months at the
University of Chicago on an MBA-exchange programme.
In February 2018, Investec announced its succession plan
(subject to regulatory approval) with the retirement of Investec
Group CEO and managing director, Stephen Koseff and Marriott Asset Management
Bernard Kantor respectively, on 30 September 2018. With the sad and unexpected passing of Marriott’s CEO,
Simon Pearse, in March 2017, Neil Nothard was appointed as
CEO. Nothard has been with Marriott for 30 years. Portfolios
Investec’s founder and CEO, Hendrik du Toit, will become joint
continue to be managed by the investment committee with
CEO of the Investec Group with Fani Titi (current chairman of
the same income-focused investment style and team-based
Investec Group), on 1 October 2018.
approach synonymous with Marriott. In addition to the
appointment of the new CEO, the following key appointments
The company’s COO and chief financial officer (CFO), Kim McFarland, were approved by the Marriott Board:
will be appointed as finance director of Investec Group on • CFO: David Elliott (formerly head of projects and
21 April 2019, while remaining on various boards of Investec. investment operations at Marriott)
• CIO: Duggan Matthews (formerly head of investments
John Green, global head of Client Group, and Mimi Ferrini, co-CIO, at Marriott)
have been appointed joint CEOs of Investec from 1 October 2018.
John McNab will remain co-CIO with Ferrini. Matrix Fund Managers
Carmen Nel joined Matrix in July 2017, following the departure
Laurium Capital of long-serving portfolio manager, Linda Smith (co-manager
Brian Thomas joined Laurium Capital from Coronation Fund Matrix Hedge Fund, Multi-strategy and Matrix Bond Fund).
Managers in September 2017, as co-portfolio manager of the
balanced portfolio. Nel, with 16 years’ market experience, joined from
RMB Global Markets, where she initially worked as an
He qualified as a chartered accountant (CA [SA]), having economist before moving into fixed income strategy. She was
completed his training at Deloitte in 1999. He joined rated first in fixed income analysis in the JSE Spire Awards
Deutsche Bank in Johannesburg in 2000 and went on to run in 2011, 2012, 2013, 2015 and 2016 and first in fixed income
the SA equity sales desk. In 2008, Thomas was promoted to securities in the Financial Mail awards in 2012, 2013, 2016 and
managing director and relocated by Deutsche Bank to London, 2017. Nel has honours degrees in mathematical statistics (UJ)
where he was head of the Central and Eastern Europe Middle and advanced mathematics (Wits), is a CFA charterholder and
East and Africa (CEMEA) equity sales team. In 2013, he was FRM charterholder.
approached by Coronation Fund Managers to join as the lead
international client services portfolio manager, a role he fulfilled Nel adds value as an economist, fixed income strategist and
for three and a half years. In addition to his CFA charter and his portfolio manager, with involvement in the long-only and hedge
South African chartered accountant qualifications, fund processes.
Investments I insights | 2018 page 7 of 32
Makalani Management Company construction. Botha’s previous roles include quantitative
During the first quarter of 2018, Palvi Kalla (previously the research analyst, portfolio manager, head of quantitative
portfolio manager at Maru Asset Management) took a position research and head of research at Momentum Investments and
as a partner and portfolio manager at Makalani Management its predecessor companies. He holds an MSc in Quantitative
Company, actively managing a long-only fixed income portfolio Risk Management from North-West University, and still
with a focus on SA government and corporate bonds. actively pursues studies in Actuarial Science.
The newly formed Makulani fixed income team forms part of
the Makalani Management Company, which was established in Nina Saad was hired as joint head of portfolio solutions,
2005. Kalla’s previous positions held included portfolio manager relating to the management of institutional portfolios.
at Maru Asset Management, Old Mutual Asset Management Saad previously held the role of deputy chief investment
and RMB Asset Management. officer at Investment Solutions, head of portfolio management
at Advantage Asset Managers. She has a BSc from the
Momentum Investments University of Witwatersrand and is CFA Charterholder.
There have been number of changes within the
Momentum Investments capability, enhancing its depth Jako de Jager was promoted to joint head of portfolio
and leadership. solutions relating to the management of retail portfolios.
De Jager has 17 years of investment industry experience,
all within Momentum Investments and its predecessor
Fixed income team
companies, starting in 2001. Previous positions include
During 2017, Zisanda Gila and Mohammed Ismail took on
analyst, portfolio manager and senior portfolio manager.
senior portfolio management functions, especially after the
He holds a BCom (Hons) degree in Investment Management,
departure of Richard Klotnick (in the first quarter of 2017) and
which he obtained from the University of Johannesburg in 2002.
Louis Scheepers, who turned his focus to shareholder balance
sheet management for MMI Group. Additionally, three credit
analysts were hired to bolster the team. Gerrit le Roux was appointed as a senior portfolio manager,
with responsibility for segregated and customised clients.
Le Roux was one of the founders (1997) and later
Gila has 14 years’ experience in the financial services industry chief investment officer of PSG Escher Investments, one of
with four years of co-managing money market portfolios. the first South African multi-manager firms. Escher ultimately
Her previous roles include portfolio administrator, fixed income evolved into Momentum Outcome-based Solutions.
dealer at Metropolitan Asset Managers and fixed income During 2012, he joined Alexander Forbes Asset Consulting (AFAC)
analyst at Momentum Asset Management. as a principal consultant. He holds a BSc (Hons) from the
University of Pretoria.
Ismail has more than seven years’ experience in the interest rate
market with a special focus on fixed-income derivatives. During 2018, Mohammed Sibda rejoined the portfolio
Before joining Momentum Investments, he was head of solutions team, as senior portfolio manager managing
fixed income at Sanlam Capital Markets. He holds degrees in corporate portfolios. Sibda has 20 years of investment
Advanced Mathematics of Finance and Actuarial Science and is experience and previous roles include senior asset consultant
a certified FRM and CFA charter holder. at Alexander Forbes; Portfolio Manager at Momentum
Investments and predecessor companies. Earlier employers
Portfolio solutions and research teams include Carsons Escher, mCubed and Absa. He holds a
In 2017, Eugene Botha, previously head of portfolio solutions, BCom degree.
was promoted to the position of joint deputy CIO of
Momentum Investments, shared with Mike Adsetts. In the portfolio solutions and the research teams, three
Botha focuses on enhancing practitioner research on the analysts were hired in the portfolio solutions team and one in
outcome-based investing philosophy, as it relates to portfolio the research team.
page 8 of 32 Investments I insights | 2018Northstar Asset Management
At the beginning of 2017, Northstar announced the appointment The broader passive portfolio management team remains
of Matthew Bertram and Rory Spangenberg to the positions of unchanged and is responsible for the day-to-day management
COO and portfolio manager/analyst respectively. Bertram works of the investment portfolios, with Kingsley having had oversight
on various projects to further enhance client servicing and of the team and primarily engaging with clients. OMIGSA is
reporting. Spangenberg was appointed to manage Northstar’s confident this team will continue to deliver to the high standards
offshore portfolios. expected from OMIGSA customised solutions.
Matthew Bertram’s previous positions held were at Deloitte, Perpetua Investment Managers
Goldman Sachs (UK), Smith & Williamson (UK) and, more During July 2017, Perpetua Investment Managers recruited
recently, Learn to Earn (SA). Mahesh Cooper, as its deputy COO. In the first quarter of
2018, he assumed the role of COO, enabling Logan Govender
Spangenberg was the previous managing director and portfolio (a founder of Perpetua) to turn his focus to the alternative
manager at SignalHill Investment Management. Before forming investments space. Govender retains remaining executive
SignalHill, Spangenberg spent 10 years with Investec, managing responsibilities on the risk and finance side.
value and income growth strategies. His experience before that
included being head of the SA research sales desk at Investec
Cooper is a qualified actuary, where most of his investment
London, research sales for Barnard Jacobs Mellet and equity
experience was gained at Allan Gray, where he was employed
portfolio manager of the Sasol Pension Fund.
for close on 14 years and held the position of head of
institutional clients for many years. During his time at
Old Mutual Investment Group Allan Gray, Cooper served as a director across several boards,
During September 2017, Old Mutual Investment Group including executive director of Allan Gray for more than 10 years
(OMIGSA) announced the appointment of Khaya Gobodo, as (from 2006 until his departure).
deputy managing director of the Wealth and Investment Cluster
with effect from 1 January 2018. During April 2018, Perpetua announced that Christine Fourie
will be joining as a fixed income portfolio manager on
His appointment aids the investment manager’s quest in 1 August 2018. Fourie will join Perpetua from Coronation, where
becoming the preferred wealth and investment manager on she has been in the fixed income team since 2007.
the African continent. Gobodo reports directly to Wealth and Previous positions include RMB in equities and derivatives
Investment Cluster managing director, Dave Macready. structuring for three years and, before that, head of product
His initial focus is on the investment management division, development in Momentum for four years. Fourie is a qualified
where his perspectives on the alignment of investment actuary.
management, platforms and distribution are most valuable.
During July 2017, Bernisha Lala joined the OMIGSA customised
solutions team, as senior passive portfolio manager. Lala has
12 years’ investment industry experience, including being the
lead portfolio manager on the passive portfolios at
Taquanta Asset Managers.
Kingsley Williams, CIO of customised solutions indexation,
resigned in August 2017, after being with the company for
nine years. Williams joined OMIGSA in March 2008, as an
investment analyst and was responsible for servicing clients and
the overall indexation portfolio management process.
Williams has 18 years’ investment-related work experience.
Investments I insights | 2018 page 9 of 32Prescient Investment Management until his departure. The multi-asset class teams
In February 2018, Prescient Holdings announced the (absolute return and balanced) were merged and operate as
appointment of Cheree Dyers, as CEO of Prescient Investment a single unit, with a derivatives specialist servicing both areas.
Management, replacing Herman Steyn. Dyers started her There was no philosophical change to the portfolios and the
career at Prescient 12 years ago, as an analyst, covering the JSE management of the fixed interest component of the portfolios
financial services sector, and held several leadership positions was moved to the specialist fixed interest team within SIM.
within the Prescient Group, including CEO of Similarly, the management of the equity component was moved
Prescient Securities. Her understanding of the broader financial to the equity specialists within SIM.
services industry adds to the advancement and growth of the
SA financial services industry. Steyn continues to hold his Narsingh joined Sanlam in July 2007. In addition to her
position as executive chairman of the Prescient Group, providing responsibilities at SIM, she served as a member of the
support to Dyers and the Prescient Investment Management team. investment committee of the Botswana Insurance Fund
Management (BIFM) from 2007 to 2012. She started her
Guy Toms, a founder of Prescient and current chief strategist, investment career as an investment analyst at Greenwich
took over the role of CIO at Prescient Investment Management Asset Management in 1998. She has, during the course of
from Raphael Nkomo, who, in turn, took on the responsibility of her career, served in many roles, including resource analyst,
expanding the company’s investment management capability head of resource/mining, portfolio manager of a resource
into the UK. portfolio, general equity portfolios, balanced, absolute return and
multi-manager portfolios. She has 17 years’ industry experience
St John Bunkell was appointed during February of 2018, and has been managing several third-party portfolios in the
as head of the equity team. He has over 20 years’ industry institutional and retail space. Before her new role at SIM, she
experience, including hedge funds, structured products and risk was the portfolio manager of the SIM Managed Solution Funds
management, and was a principal of Absa Alternative Asset and co-portfolio manager of the SIM Absolute Return Funds,
Management within Barclays Africa Group (since September 2009). including the flagship SIM Absolute Return retail offering, the
Inflation Plus Fund.
SalientQuants
Kobus Esterhuysen was appointed director and key individual Sanlam Investments – Satrix
of SalientQuants, after the announcement in February 2017 by During May 2017, Satrix communicated Jason Liddle’s
Paul van Rensburg (founder of SalientQuants) of the 50% stake resignation from his position as CIO. He left Satrix to become
holding of Peregrine Holdings in SalientQuants. head of the institutional clients at Absa Investments. Satrix has
the advantage of multi-skilled team members, who are able
Esterhuyzen is an executive director at Peregrine Securities and to move between roles. Jason Swartz, previously investment
previous positions include executive director at strategist at Satrix, assumed the role of head of portfolio
Mercury Financial Services, Sanlam/Gensec Investment solutions (responsible for bespoke client solutions, quantitative
Management (development of structured products) and Sanlam research and institutional client engagements). Johann Hugo,
Employee Benefits (Valuations and Marketing). Van Rensburg previously senior portfolio manager, assumed responsibility for
continues to manage and develop his portfolios, also focusing the portfolio management function, across passive, smart beta,
on research and product development. enhanced index, local and international.
Sanlam Investment Management
During November 2017, Satrix announced the appointment of
During May 2017, Sanlam Investment Management (SIM) its new CIO, Kingsley Williams, after the departure of
announced the appointment of Natasha Narsingh, as head Jason Liddle.
of absolute return, after the resignation of Philip Liebenberg,
whose recent positions at Sanlam included head of absolute
Williams previously held the position of CIO at
return since 2009 and senior quantitative analyst in 2005.
Old Mutual Customised Solutions and has 20 years of industry
experience, which includes indexation, portfolio management,
Narsingh joined the absolute return team shortly after quantitative research, product development and information
Liebenberg’s appointment and worked together with Liebenberg technology.
page 10 of 32 Investments I insights | 2018Sasfin Wealth a broad range of asset classes to enable them to make more
During April 2017, Sasfin Wealth announced the appointment of informed decisions in their specialist areas for the benefit
Errol Shear to the position of head of value equity and absolute of clients. These steps strengthen individual franchise
return. Shear assumed the position on 2 May 2017. accountability, while retaining the benefit of drawing on the
insights available across the different capabilities.
Previous experience includes his most recent role as CIO at
Absa Asset Management. Shear’s more than 30 years’ industry During February 2017, Seelan Gobalsamy (CEO of STANLIB
experience includes a decade at Absa. Before that, he spent South Africa) was appointed as the CEO for the emerging
more than 20 years’ at STANLIB, managing the absolute return markets cluster within the Liberty Group. His responsibilities
portfolios with a value of more than R10 billion. Additionally, include STANLIB Africa, Group Arrangements
Shear was responsible for the management of the Liberty (Liberty Corporate, Liberty Africa and Liberty Health), as well
Group and Liberty Active (Charter Life) life portfolios as well as new businesses (as and when established). Gobalsamy
as certain segregated portfolios. The appointment is in line continues to serve as a director on the STANLIB board.
with the company’s strategy to further expand its investment During Gobalsamy’s time as STANLIB CEO, he was responsible
management capability to be a stronger competitor in attracting for the enhancement of its investment capability, which
institutional clients. included the listing of Liberty Two Degrees and Fahari I-REIT
in Kenya, as well as the expansion of STANLIB’s alternatives
Sentio Capital Management offering. He was instrumental in growing STANLIB
Sanveer Hariparsad and Yashin Gopi joined the Sentio Capital Multi-Managers and strengthening the quantitative
Management team during the first quarter of 2017. Hariparsad investments capability.
joined as fixed interest portfolio manager, previously portfolio
manager at Prescient, where he managed retail and institutional Executive: Asset Management is a position that was created
mandates at a combined assets under management of to afford a greater focus on STANLIB’s expanding investment
R20 billion. Portfolios ranged from close tracking to no-duration capabilities. Giles Heeger was appointed to fill this role.
limits and tactical asset allocation. Other previous positions Heeger co-founded LibFin and was responsible for de-risking
held include Future Growth and Old Mutual Investment Group, the Liberty balance sheet and managing the shareholders’
where he was responsible for building valuation models, portfolio. He focuses on STANLIB’s multi-specialist capabilities,
portfolio optimisers and portfolio stress testing for the fixed which include quantitative investment solutions and STANLIB’s
interest asset class. Gopi was hired to be head of the Sentio new credit capability.
quantitative team and his experience includes quants analyst
positions at BNP Paribas and Cadiz, and was rated top quants In March 2017, STANLIB announced the appointment of
analyst by the Financial Mail. Derrick Msibi, as CEO of STANLIB South Africa. Msibi has
17 years’ experience and a proven track record in the investment
STANLIB management industry. Msibi’s responsibilities are to drive
In 2016, STANLIB decided to consolidate its equity offerings into strategy and provide leadership to the combined LibFin and
a single equity franchise with a single investment philosophy STANLIB teams. He is a member of the STANLIB board and
and process. The equity franchise is led by Herman van Velze, the Liberty group executive committee. Msibi joined from
who has more than 20 years’ portfolio management experience, the Alexander Forbes Group, where he held the positions of
ably assisted by portfolio managers, Theo Botha and Ndina Rabali. managing director of Alexander Forbes Investments
Consistent with this process, the decision was taken to integrate (previously Investment Solutions) and joint head of the
equity research into the franchises namely equity, absolute institutional businesses. With more than an eight-year tenure,
return (led by Marius Oberholzer) and multi-asset class Msibi had a number of achievements, including driving profits
(led by Robin Eagar). The investment manager believes above target, implementing strategic change initiatives to
end-to-end franchise accountability and total alignment of the enhance efficiencies and supporting new business. He continues
franchises’ investment processes to the research efforts, leads to contribute to selected boards and public organisations.
to better investment outcomes for clients. Before Alexander Forbes Investments, he held various senior
Multiple investment specialists have been connected across positions at Old Mutual for more than ten years.
Investments I insights | 2018 page 11 of 32Terebinth Capital Truffle Asset Management
In February 2017, Nicole le Riche joined Terebinth Capital, At the beginning of 2018, Truffle Asset Management appointed
as head of operations. Positions previously held included Craig Sampson, as COO of Truffle Asset Management.
investment support manager at Blue Ink Investments Sampson is a Chartered Accountant and has an
(2012 to 2017) and manager of the dealing and settlement team MCom degree in taxation.
at Maitland (2007 to 2012).
He spent eight years at Standard Bank, providing security services
In September 2017, Nomathibana Matshoba joined Terebinth solutions to investment managers, global banks, pension funds
Capital, as lead portfolio manager on the fixed income money and the collective investments industry. Thereafter, he designed,
market portfolios with seven years’ experience in fixed income. developed and implemented portfolio administration operations
Previous experience includes investment analyst at for two Nigerian Banks as well as an SA CIS management
Catalyst Fund Managers, co-portfolio manager/portfolio company. It was in the latter role that he was responsible for
manager, fixed income analyst, credit analyst at Coronation providing Truffle with an outsourced portfolio administration
Fund Managers and various positions held at Old Mutual and management company service for many years.
including junior actuarial analyst, finance product owner and More recently, Sampson advised Truffle on various
senior strategy analyst. product-related strategies, from a structural and a tax point of view.
page 12 of 32 Investments I insights | 2018Persuasively passive and
systematically smart
Tatjana Raunich | Qualitative Research Analyst
There are many debates about active and passive investment management.
A few salient benefits of both investment management approaches have
been highlighted below.
Index (or truly passive) investing affords an investor a used as building blocks that form part of a broader portfolio
cost-effective exposure to a broad set of individual securities, construct, where cost efficiency is an important requirement.
which capture the diversification benefits and the return profile
of the market (market ‘beta’).
Active investment management relies on the continual
macro- and micro-economic research by its investment
Smart-beta investing affords the investor a cost-effective exposure
managers to inform their investment decisions.
to specific risk-return drivers (such as value or price momentum).
This makes the process more subjective and more adaptive
These have expected return profiles, which can be extracted
in constantly changing markets. Active investment managers
from the market, by holding a portfolio of shares with associated
are required to meet return targets, which are set relative to
characteristics that generate the required return profile. A
systematic approach is used for smart-beta investing to do a specified benchmark. If the active investment manager is
exactly this. In addition, transaction costs can be controlled a skilled share selector and/or asset class allocator, alpha
by a predefined set of rules, making for easier modelling generated can be superior to returns generated from
and monitoring, resulting in cost-effective, ultimately active, smart-beta strategies.
portfolios.
Momentum Investments believes there is a case for the use
A well-designed smart-beta model can give more certainty to of active and passive investment approaches, as they give
expected return profiles. Smart-beta portfolios are useful when exposure to different sources of return.
Investments I insights | 2018 page 13 of 32Simple descriptions of active, passive and smart-beta management
(For the sake of simplicity, this article makes reference to the equity asset class only)
Active investing
Active investing is where an investment manager identifies a These portfolios are commonly referred to as passive
universe of instruments and, with thorough research and skilful index-tracking portfolios, because they aim to track or replicate
share selection, aims to outperform a chosen benchmark, or indices by investing in the physical underlying instruments.
from an absolute perspective, outperform an inflation-plus
target. This involves fundamental research into companies or The management of these passive index-tracking portfolios
issuers in terms of macro- and micro-economics. requires a different skill set to that of active investment
Active investment managers focus on a predefined philosophy, management. The quest to achieve ‘the ideal volume at an ideal
which is implemented through an investment process, where price, at an ideal point in time’ is in no way a less-gruelling task.
specific fundamental criteria are used to capture drivers When a tracker portfolio tracks an index identically and at the
of returns. Analysts are employed to identify the drivers of lowest possible cost, the portfolio manager is not showered in
expected returns and calculate valuations for the companies glory for this feat! Passive investment management is thus often
through a research process, which also involves interaction with a thankless job, but it is a valuable service to the
company management. The portfolio manager makes the final investment community.
decision on the shares and corresponding weightings to be included
in the portfolio, constantly reviewing risk at a portfolio level. Smart beta
In the longer term, the equity market is largely driven by
Traditional passive investing underlying company fundamentals. Differences in rates of
This is where the investment manager aims to extract a specific growth and profitability drive differences in the returns of shares
beta from the market. The most common being exposure to in companies on an exchange. Investment theory and practice
equity, listed on a securities exchange of a particular country, have evolved to a point where the drivers of return can be
to benefit from collective returns of the constituents listed on isolated through the identification of associated characteristics
that exchange (equity market ‘beta’). Indices are constructed (factors) in a systematic way (which involves the specification
to measure a group of representative shares chosen from a of rules guiding share selection) to capture the related premia
particular exchange. (reward above a risk-free rate of return for investing into a
risky investments). The rules-based method of extraction of
characteristics associated with a specific factor, as a means to
The indices can be described as baskets of shares, where
capture related premia, can be referred to as smart beta.
shares are weighted into the basket according to a chosen
metric. Typically, shares are weighted in the index by using their
market capitalisation, which is the product of freely-traded It has become popular to extract market premia, using
shares and their current market price. The investment manager smart-beta methodology. Well-known equity premia recognised
aims to replicate this index, by purchasing physical shares or in the SA market, are the value and Momentum premia.
instruments in the combinations defined by the index. Other factors include size, quality and low volatility.
page 14 of 32 Investments I insights | 2018Individual shares’ characteristics will rotate between the likes on the strength of the signal of the premia compared to its
of factors such as momentum, value and quality over time, effect on portfolio-construction risk and turnover cost.
because perceived drivers of share prices vary, over shorter time • The investment manager also needs to consider the
periods; therefore, they depict different risk premia through inherent weaknesses of the beta strategy that is being
different market cycles. harnessed and may choose to add constraints to minimise
this risk. An example of this would be where a portfolio
Financial and price metrics are used to identify shares of manager puts in constraints or criteria to prevent a value
companies, which display particular characteristics, where such beta strategy from owning companies that have high
characteristics are synonymous with an underlying driver of probabilities of becoming value traps to exclude shares that
the share price, which translates into a premia. For example, are losing money. (The risk inherent in the value investment
value shares are identified based on measures such as the strategy is referred to as a ‘value trap’, where a company
price-to-earnings or price-to-book ratios, while momentum share is bought at a relatively low market price [cheap] and
shares are identified through their price returns in the last year. the market price correctly reflects its low intrinsic value;
Based on these variables, shares can be ranked and portfolios that is, the company is cheap for good reason and there is
constructed, which contain shares that exhibit the desired no value to be unlocked from the current price. Value traps
characteristics or combinations of characteristics. Portfolios are destroy value risk premia and need to be avoided.)
then created to replicate these value or momentum smart beta • The metrics used in the share selection process and
indices. constraints that are applied in the portfolio construction are
the differentiating aspects between smart beta portfolios.
It is important to note that the range of premia in the SA This is where intellectual capital enters into the process
market is limited, as SA has a fairly narrow market, because it and embodies the ‘smartness’ of the beta portfolio, which
is dominated by sector-specific companies and has less listed can either detract from or enhance beta returns. Risk arises
constituents on its exchange, relative to its developed-market when the construction of the smart beta model generates
counterparts. SA’s equity Johannesburg Stock Exchange (JSE), return profiles that are less reflective of the strategy than
as measured by the FTSE/JSE All-Share Index (ALSI), has about what they originally intended to capture; thus, contradicting
160 constituents relative to the US large-cap equity exchange the purpose for which the beta strategy is used.
measured by S&P500, with about 500 constituents. This leaves
• The process is continual and must be rerun to update the
the SA market with less latitude for certain of the market premia
portfolio with constituents that signal the strongest in
to play out. Thus, it is important for portfolio managers to test
terms of the beta strategy the investment manager intends
the strength of the premia they intend capturing in the context
capturing. The portfolio manager will increase or decrease
of the SA market.
positions in constituents or effect new buys or outright sells
based on the signals received from the financial metrics.
In short, smart-beta indices and portfolios are a systematic way This process is referred to as rebalancing.
of capturing perceived systematic biases or inefficiencies in the Rebalancing triggers brokerage or trading costs, which
market, in terms the following: detract from portfolio returns. The portfolio manager has to
• Screens or filters are designed to isolate the desired betas evaluate trading cost compared to the rebalancing benefit
from the market. before a rebalance is performed. Investment managers
• The selection criteria are usually quantitatively based, where often design proprietary systems to optimise the costs and
the investment manager will use various metrics, whose benefits of rebalancing.
outcomes, once applied to the financial statements of the • Liquidity of the share or constituent is also important, as it
company, will signal whether inclusion of the company must be easily traded on the market to uphold the efficiency
share will capture the desired beta premia or not. The of the portfolio to the extent the share can be bought or
filtered shares are then weighted into the portfolio based sold timeously, so beta is not diluted by holding sub-optimal
on predetermined rules, which assists in optimising the constituents (that is, when the portfolio is not holding the
inclusion of a share into a solution. This is usually based constituents that best represent the desired beta).
Investments I insights | 2018 page 15 of 32The use of passive or smart beta in Momentum Investments’ multi-strategy portfolios
Momentum Investments uses actively managed, smart-beta Among the strategies sourced for the equity asset class, value
and passive index-tracking portfolios in various investment and Momentum factors are no strangers. The premia delivered
offerings. The company’s investment philosophy revolves around by these two factors are well understood by the investment team;
the achievement of a client objective over a specific time period, therefore, portfolios have a measured exposure to both these
usually expressed through an inflation target or predetermined factors in a portfolio construct. Value and Momentum
return and risk objective. With a risk budget in mind, a blend of smart-beta portfolios are commonly used to extract these
asset classes that optimally achieve the investment objective factors because they systematically isolate these two premia in
is strategically weighted into the portfolio. Within each asset a cost-effective manner. Passive portfolios that replicate the overall
class, there are carefully chosen investment strategies that market beta are used as a cost-effective base to contribute to
represent the best opportunity captured by various risk premia. the build-up of the total premia expected from an asset class.
At this juncture, a slice of Momentum Investments’ in-house talent is introduced:
The systematic strategies and structuring team, with a focus on systematic strategies
Origins
The team was formed in 2016, after the unbundling of was a business unit within Momentum Investments that
Momentum Asset Management, to facilitate the creation resulted from a merger between Rand Merchant Bank (RMB)
of ALUWANI Capital Partners (MMI’s black economic Asset Management and Metropolitan Asset Managers
empowerment partner). Momentum Asset Management in 2010.
Group structure
Figure 1.1: Group structure
Jeanette Marais
Deputy CEO of MMI and CEO of Momentum
Investment
Executive leadership
André Nortjé Theo Terblanche Bongi Sokhela Sonja Saunderson Wayne Dennehy Martin Riekert Daleen Lessing
Distribution Head: Product CRO Governance
COO Enablement CFO Human Capital CIO
Solutions
Investment team
Nesi Chetty Nina Saad/ Herman van Motlatsi Wayne Norman Vacant James Eugene Botha Mike Adsetts
Head: Growth Jako de Jager/ Papendorp Mutlanyane Dennehy Mackechnie Fixed Income Klempster Deputy Chief Deputy Chief
through Capital Head: OBI Portfolio Head: Research Head: Alternative Head: Systematic Head: Transition Strategies Global Investment Investment
Investment Strategies & Management Officer Officer
Solutions & Insights Structuring
Institutional/Retail
Systematic Strategies and Structuring Team
Loftie Botha Imtiaz Rekha Bawa Jacques Jaco Potgieter Oganga Useh Larissa Naidoo Kobela Rangata Carol Taylor
Portfolio Manager Mohammed Alli Index Tracing Senekal Assetliability Assetliability Assetliability Assetliability Portfolio Manager
Portfolio Specialist Head: Management Management Management Management
Assistant Assetliability Specialist Specialist Specialist Specialist
Manager Management
page 16 of 32 Investments I insights | 2018The systematic strategies and structuring team is one of the Key investment professionals
investment capabilities, among others, that fall under
Momentum Investments, headed by Jeanette Marais.
Sonja Saunderson is the (CIO), custodian of the outcome-based Wayne Dennehy
investing philosophy and all the teams within the investment Head of Systematic Strategies and
capability. Wayne Dennehy is the Head of the Systematic Structuring
Strategies and Structuring team. Faculty and Institute of Actuaries (FIA)
Financial Risk Manager (FRM)
Bachelor of Science Honours
Passive and smart-beta portfolios have been co-created by the (BSc [Hons]) (Actuarial)
systematic strategies team, with input from various members
Dennehy is a qualified actuary and pension fund valuator, having
of the portfolio solutions team. This ensures that the strategies
worked at Momentum Actuaries and Consultants for 11 years,
represented and used in the multi-asset class client offerings are
as a pension fund valuator and asset consultant. He switched
aligned to the required profile.
to investment banking in 2003, where he was the Head of the
Inflation Derivative Desk at Rand Merchant Bank (RMB) for four
Investment philosophy years, before joining Absa Corporate and Investment Banking
The OBI philosophy is the investment premise behind every at the end of 2007. Dennehy successfully ran a structured sales
investment capability within Momentum Investments. team in the markets business before being asked to help set
This philosophy supports the MMI vision, which is ‘to enhance up a structuring team within the company’s markets business.
the lifetime financial wellness of people, their communities and Before leaving Absa, he took management responsibility of the
their businesses’. The goal behind the philosophy is to keep exchange-traded portfolio business and was responsible for
clients invested and to maximise the probability of achieving driving its passive businesses across Barclays Africa
clients’ investment goals that will meet their needs. Group Limited. Dennehy re-joined MMI in January 2016 to
become Head of Passive Investments and Systematic Strategies.
Assets under management
Figure 1.2 Total assets under management at 31 March 2018
was R21.9 billion Loftie Botha
Portfolio Manager
Bachelor of Engineering (B.Eng.) (Industrial)
(University of Stellenbosch [SU])
Bachelor of Commerce Honours (BCom
44% [Hons]) in Investment Management
(University of Johannesburg [UJ])
56% Master of Commerce (MCom) in Business
Management (University of Johannesburg [UJ])
Botha has experience in managing institutional and retail
portfolios over a wide product range and diverse market
conditions since 1999. During his tenure as CIO at Umbono
Fund Managers (later renamed OMIGSA Global Index Trackers),
Smart Beta Indexation he was responsible for indexation, enhanced-indexation, smart-
beta and absolute-return portfolios. In this position, he was part
of the team that built a world-class indexation business and saw
assets under management grow from R7 billion to R50 billion.
Botha joined Metropolitan Asset Managers in 2010, as the
Head of Absolute Strategies. In 2011, he was appointed Portfolio
Manager for Absolute Return Portfolios and Index Portfolios at
Momentum Asset Management.
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