Low Asset

‘We’re at the backend of a bubble …’

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RYK VAN NIEKERK: Welcome to my weekly Market Commentator podcast, where I speak to the leading investment professionals and fund managers in the country and we try to get an understanding of the perceptions of valuations, and where they see value. We also look at what they are currently buying and, probably more importantly, what they are selling.

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My guest today really does not need any introduction. It’s Rob Spanjaard, the chief investment officer of Rezco Asset Management. He has been in this position since 2004. Rob, thank you so much for joining me. I did a bit of research today and was surprised to see that Rezco has only five funds. Is that correct? I would have thought there would be more.

ROB SPANJAARD: Ryk, firstly good afternoon. Good afternoon to all your listeners*… We try to get our best view, so we’re not trying to add. The danger here is five funds become 10 funds, become 20 funds. So we try to keep it to a best view and limit that.

RYK VAN NIEKERK: Many other asset managers actually follow a different approach. I think there are more than 3 000 collective investment-scheme options available to investors today, and it makes it very difficult to choose.

ROB SPANJAARD: You always want to do that. It’s great for marketing, because you have a whole lot of horses in the race and then, after the event, you pull out a fund that’s done particularly well and you tout the performance. The problem is upfront the investors didn’t know which one to choose. So I think you can have a bit of a game with that. Marketing guys in funds always like it. So, if you have 20 or 30 funds, you are always going to have one that’s got stunning performance. If you’ve got five funds you’ve got to be a lot more sharp and on it. But at least the investors know, going forward, what they need to choose.

RYK VAN NIEKERK: Before we look at your funds, I want to discuss your investment approach – and especially the way you use data and technology because you do place a lot of emphasis on technology. Tell us about this approach.

ROB SPANJAARD: ..It’s the world we live in. Data is becoming critically abundant. There’s data for everything. It’s really, because of the internet, freely accessible. At the same time you’ve had another trend, which is that computing power has become very cheap. Obviously our laptops we have got much more powerful. But particularly in the area of cloud.

And on some of our machine-learning models, you’ll fire up [the equivalent of] 70 000 MacBook Pros, and you process a whole lot of kilobytes of data, and you can run that through in one model. That you couldn’t do five years ago. So you need to be able to have the technology to process large data sets and come to an intelligent conclusion. That’s where machine learning becomes very effective. A lot of nonsense is spoken about machine learning, but it’s also a massively useful thing. And the analogy we often give is you find like Google Photos, for example, can recognise pictures of your kids when they’re babies a lot better than you can in a lot of cases. Some machines are getting better at recognising patterns and pictures than people are. But it’s very new. You’ve got to kind of use the data. So we spend a lot of time learning data, processing data. Then our investment team needs … those tools at your fingertips. So obviously, like in our Equity Fund, every time we buy or sell a share, we see what it does to the risk stats of the portfolio. You can do some really detailed calculations on if it moves the risk stats up or down, and are you happy with the result that you would get if you added 5% of share X to the portfolio.

RYK VAN NIEKERK: The ability for these tools to crunch numbers to the extent you have explained – does it flows through to better investment decisions?

ROB SPANJAARD: It’s starting to. Up till now, three or so years ago the world got super excited. You read so many articles about machine learning and that ‘it changes the face of investment’. As with all of these things, it’s actually a lot more complex than you initially think it is. But, like they’ve often said on the internet, you will initially overestimate the impact it makes. If you think around [year] 2000 it was going to change everything – and there was a lot of disappointment, and in the longer term you tend to underestimate the impact it makes. I think where you are now, where you understand the complexity of it, it actually is becoming very useful; but it’s darn hard and darn complex.

RYK VAN NIEKERK: Do you do it in-house, or do you use data from an external [facility]?

ROB SPANJAARD: We’ve got a good team which is called Alis – it sounds like a lady’s name, but it’s Automated Learning Investment Systems. We’ve got quite a hot-shot team run by a guy called Jan Krynauw, who’s probably the leading guy in SA and certainly [of] international guys we’ve talked to. They do some pretty cool stuff, but [they’re] highly focused on learning and understanding and building the systems around it.

Rezco Equity Fund

RYK VAN NIEKERK: I don’t know if you saw, but we published an article on Moneyweb Today, and it ranked the top equity funds in South Africa according to their performance over the past five years. Only funds with assets under management of more than R10 billion were included in this ranking. The top-performing fund was the Coreshares S&P 500. Had you invested R100 000 in this fund five years ago, you would have around R237 000 today.

Read: What R100k in SA’s biggest equity funds five years ago is worth today

You also have an equity fund that has performed really, really well over the past few years. It does not have R10 billion under management, so it was not included in this ranking. But if you invested R100 000 in this equity fund five years ago, what would the value be today?

ROB SPANJAARD: That number would be about R185 000; it’s quite low-risk stats. That’s what we try to aim for – we don’t want a lot of volatility, so we’re working hard on keeping volatility low. So if you plot it on a matrix with the other funds in the sectors, we want very low volatility stats and risk stats, but we’ve still got the performance. So that fund’s about R1.5 billion. It’s a decent-sized fund….. But yeah, R100 000 will have become R185 000.

RYK VAN NIEKERK: Yeah. That would put you in fifth position. But what is interesting is that of all the other funds the first three are internationally-focused funds, actually index trackers, exchange-traded funds. Your fund is virtually looking exclusively at the local market.

ROB SPANJAARD: Yeah, it is. It’s an SA-only equity fund. So it’s great for a building block, where guys are saying, look, we want to get our offshore exposure some other way, but we want a component in South Africa. So it’s SA-only equity. We’ve got a much smaller set of shares to choose from than when you can choose from the whole world.

RYK VAN NIEKERK: I’m looking at the top 10 shareholdings in the fund. Right at the top with around 8% of the total value of the fund is AB InBev. Then number two is Discovery, number three is Mondi and then Bidcorp. They are not usually the companies you would see. Currently I think a lot of funds or equity funds look at the commodity sector and the financial sector. But just take us through the thinking of the top holdings – AB InBev, Discovery, Mondi and Bidcorp.

ROB SPANJAARD: AB InBev is interesting. We put them in recently at that holding; we think they’ve been pushed down quite a bit, so they’d got quite cheap. It’s a great business that obviously was totally overpriced at one stage, but it’s come back to a…

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