While most public information about unit trust funds is focused on past returns or an indication of potential future returns, little is known about the South African experts picking the stocks.
Fund managers who manage these unit trust funds perform differently given similar economic and market environments, similar investment opportunity sets, and even similar investment mandates.
Leigh Köhler, head of research at Glacier by Sanlam, has published a comprehensive breakdown of South Africa’s fund managers, with his team at Glacier spending countless hours trying to answer this question by understanding the differences between fund managers.
The report focused on qualitative factors such as the investment philosophy, process, people, organisational structure, and costs of funds – with the aim of identifying funds that are superior to peers.
In addition, it focused not only on quantitative information such as performance, but also fund manager characteristics such as manager age, tenure, undergraduate university attended, and whether the manager holds a CA, CFA or MBA qualification.
Fund manager age and tenure
87 different fund managers representing 54 asset management companies were responsible for the management of the 146 funds in the sample.
These were broken down across the ASISA Multi Asset Low Equity (LE), Medium (ME) Equity, High Equity (HE), Flexible Equity (FE), and General Equity (GE) categories.
- Glacier found that the average age of the fund managers in the data-set is 47 years, while the oldest fund manager was 64 years old, and the youngest was 30.
- The average tenure (number of years managing the fund) is 7.7 years, with the shortest tenure at 0.5 years and the longest at 17.6 years.
- Only 4% of the sample are female fund managers, while a staggering 96% of lead fund managers are male.
- Fund managers between the ages of 45-49 produced the best five-year returns (11.96%) at relatively moderate levels of volatility, while managers between the ages of 35 – 39 produced the lowest levels of returns (9.39%) over the period.
- Managers between the ages of 50-54 took on the highest levels of risk, 9.11% (measured by standard deviation), while the youngest age group of mangers took the least risk (6.42%) over this period.
The performance of managers above 60 is worth noting too – relatively high performance (11.68%) at lower levels of risk.
- When analysing the funds according to fund categories, Glacier found that managers above the age of 60 performed best in the GE and LE categories.
- Fund managers above 45 years old perform better than managers younger than 45 in FE, HE and ME categories.
- Managers of funds with a tenure between 16-21 years produced the best five-year returns (14.05%).
- It is interesting to note that managers with a tenure greater than 21 years returned the least (7.12%), but at far higher levels of risk (18.20%).
- When analysing the data according to fund categories, managers with 16-21 years’ tenure dominate performance in the GE funds, however managers with 11-16 years outperformed in the FE and HE categories.
Undergraduate university attended
The most striking observation from the data is that almost half of the sampled fund managers obtained their undergraduate university degree from University of Cape Town (UCT).
- All the fund managers in the data set obtained an undergraduate degree – 46% from UCT, 10% from the University of Stellenbosch (US) and 8% from the University of Witwatersrand (Wits).
- 64% of the sample completed their undergraduate degree at Tier 1 (UCT, US and WITS) universities, 30% at Tier 2 (rest of SA universities) and 6% at Tier 3 (international universities).
- Only 1% completed their undergraduate degree at a technical university (Cape Peninsula University of Technology – CPUT).
- The highest average performance over five years was generated by fund managers who attended the University of the Free State (UFS) – 13.25%.
- The lowest returns were generated by managers from UKZN – 8.69%.
- There is no significant difference in returns between Tier 1 – 3 universities.
According to Glacier, when analysed according to fund category, managers who attended Tier 2 universities produced the highest performance across all categories, except LE, where managers who attended Tier 3 (international) universities fared the best over five years.
When looking at their tertiary education, 49% of fund managers are CFA charter holders, indicating the growing relevance and importance of this international qualification within the fund management industry.
- 27% of the sample are chartered accountants (CA) while only 18% hold an MBA qualification.
- 5% of the fund sample is managed by fund managers with a MBA/CFA combination, 1% with an MBA/CA combination, 17% with a CA/CFA combination, and 0% with an MBA/CFA/CA combination. The rest of the sample is managed by fund managers with at least one of these qualifications.
- The study found that fund managers with an MBA produced better returns (11.58%) and at lower levels of risk (7.77%), than fund managers without an MBA (10.77%).
- The observation that MBA graduates produced better five-year returns held across all fund categories except FE. The evidence also suggested that managers with an MBA degree took on less risk across all fund categories in order to generate returns.
“Very interestingly, the results above indicate that fund managers with a CFA qualification under-performed (10.24%) managers without (11.59%) a CFA qualification – and they did so at higher levels of risk,” Köhler said.
The observation that non-CFA managers outperformed CFA managers over the five-year period held across all fund categories.
Fund managers with a CA qualification outperformed (11.68%) non-CA managers (10.65%). However, it seemed that fund managers with a CA qualification were willing to take on more risk to generate greater returns.
The general observation that the CA qualification outperforms the non-CA qualification held for all categories expect HE and LE.
- 51% of the fund managers reported to employing a value style to investments, 17% quality, 7% growth and 0% momentum.
- 25% of the fund managers claim to be agnostic to any one particular style – and may employ different investment styles, depending on opportunities and environment.
- Fund managers purporting to have a quality style dominated returns over five years, while value managers performed the worst over the period.
- Fund managers who make use of a quality investment style have dominated performance across all fund categories, while value managers have performed the poorest across all categories, except ME.
“There are two very important aspects to consider when interpreting these investment style results,” said Köhler .
“Firstly, the dominant market cycle during the time of the analysis should be taken into account and therefore future studies should conduct testing over various market cycles.
“Secondly, in practice, fund managers in South Africa are often wary of constraining their investment philosophy to one style, hence a relatively large (25%) proportion of the sample claiming to be style agnostic. It is also not uncommon to find managers who claim one style but employ another.”
Asset management companies are usually aligned to banks, insurance companies or are independent.
- The report found that 59% of the funds are affiliated to an independent asset management firm, 27% to insurance, 12% to banks and 2% to wealth management. Independent firms include large fund managers such as Coronation, Allan Gray and Foord.
- The results revealed that companies associated with wealth management produced the best returns (15.41%) over the five-year period. However, it is important to note that wealth management is only represented by one company.
- The returns of both bank associated asset management companies and independents are comparable (11.19% and 11.25% respectively).
- Excluding the one wealth management company, companies linked to banks have produced the best five-year returns for the GE and HE funds, while independent asset managers have produced the best returns for the FE, LE and ME funds.