by: RMI Investment Managers
Date: Dec 14, 2020
This year will always be associated with a devastating global pandemic, and the extreme market volatility it caused. Yet, 2020 is also a year that taught us a lot about ourselves. In retrospect, it has forced us to focus on what is really important in our businesses and our lives. Even acknowledging the disruption and the tragedy of this year, we have come to realise how much we have to be grateful for.
At RMI Investment Managers, and for all our affiliates, we can be extremely grateful that we were able to continue to operate without much disruption throughout the year, that our businesses weren’t directly impacted by the lockdown, and we could work successfully from home. We were humbly reminded of the important role we play in society of protecting people’s financial futures and just how seriously we should be taking this responsibility.
For such a tough year, we can be proud of how our affiliates have stood up. In the turbulence of the first and second quarters we received many queries about the sustainability of these boutique managers. Yet, all of them have not only shown their resilience, but also how they have admirably adapted to the changing environment.
We have seen how businesses with a deep, cultivated culture where staff enjoy trust, respect and accountability, have thrived in a work-from-home environment. This has changed expectations of where and how people can operate successfully, and it also means that the talent pool for asset managers has opened up globally.
The first half of the year favoured safe haven assets, precious metals and rand hedges listed on the JSE, while the second half saw SA Inc, small and mid-cap stocks outperforming other counters. The ZAR appreciation against major currencies in recent months has also favoured SA-only mandates. This has helped a number of our affiliates to deliver significant alpha over the past 3 months.
Property counters were resuscitated by the better-than-expected efficacy rates of the 3 vaccines that released final phase data during November. The sector remains in critical condition and still lingers 42.4% below the start of the year level. Our affiliates have navigated the sector very well and all our listed property funds have delivered alpha and outperformed their peers.
Pleasingly, all our unit trust funds in the Multi-Asset Income ASISA category delivered top quartile returns for the 11 months to November, with 2 of the top 5 funds being managed by our affiliates.
We have seen excellent performances in single asset class mandates such as SA Equity, Global and Hedge. Managers that were agile while remaining true to their investment philosophies and processes delivered significant outperformance relative to their peers and benchmarks. Passive investing has started to gain traction in SA, albeit at a much slower pace compared to the international markets. We have observed a number of aggregators introduce, if not increase, passive exposure to client portfolios in order to reduce overall portfolio costs while not compromising on performance. CoreShares, our affiliate specialising in passive capabilities, has benefitted from these allocations. Their focus on reducing tracking errors, across their portfolios over the past 2 years, has stood them in good stead to navigate the Covid-19 induced volatility while ensuring participation in the sudden market recovery.
At the start of the year, we celebrated the launch of two new Multi-Asset High Equity portfolios by Granate Asset Management, and pleasingly both funds have had a fantastic start and delivered top decile returns since inception.
Our commodity hedge fund manager, Polar Star, was able to capture some exceptional returns across their range of funds. Clients invested in their USD flagship fund have seen 56.9% gains for the year to date.
Our affiliates’ funds that managed to achieve top quartile ranking YTD include:
In total, our affiliates have seen net inflows of R3.8bn into their unit trust portfolios since the start of the year, resulting in 13.5% retail organic growth. It is notable that the bulk of these flows came into equity, multi-asset and property funds, which have seen net outflows across the industry as a whole. What is particularly pleasing is that the strong increase in retail assets both diversifies their client base and helps support margins.
At the same time, we are encouraged by the level of support that many of our affiliates received from discretionary fund managers (DFMs) and multi managers. These allocators are primarily interested in specialist mandates rather than multi-asset funds, an area where our affiliates continue to see inflows.
One of the interesting impacts of the Covid-19 pandemic is how it has levelled the playing field for asset managers in terms of their ability to connect with clients. It forced the entire industry to be more creative as large marketing budgets no longer guaranteed a naturally competitive advantage. This afforded boutique managers the opportunity to engage on an equal footing through digital channels.
As a result, activity levels at our affiliates have increased substantially at a relatively low cost. They have been able to reach more clients, more often, building their brands in the process. For an industry that relies on building long-term, trusted relationships, in-person communication remains critical and it will be interesting to see how this evolves into 2021.
After such a challenging year, it is encouraging to us that our affiliates have all weathered the Covid-storm and the diversified nature of our asset class portfolio demonstrated its value in delivering a better-than-expected financial performance, resulting in RMI Investment Managers reporting its maiden profit in its fifth year of operation.
More recently, we supported the merger between Tantalum Capital and Laurium Capital and will maintain an economic interest in the combined entity for the time being.
It is in trying years like this that the business model of a long-term, patient shareholder like RMI Investment Managers is tested and we are proud to remain a steadfast partner to our affiliate businesses. Throughout 2020, we have strengthened our friendships and relationships with our affiliate managers and deepened our commitment to ensure their future success. We will certainly be tested again in the coming year, but what this year has taught us is that there is far greater power in the collective and that we should remain humble and grateful but also confident in our ability to be resilient, whatever life or the markets throw at us.