South Africa’s largest private asset manager Allan Gray has topped the list of the country’s best fund managers for investment performance. That’s according to Morningstar, which produces a risk-adjusted assessment of all South Africa’s unit trusts with the Morningstar Rating. For many investors, this news will not come as a surprise: Allan Gray has a reputation for delivering superior returns over the medium to longer term, with the added benefit of keeping charges to a minimum. Also helping, perhaps, is that the value style of investing, which is the Allan Gray approach, has been outperforming other styles. As the FT notes: “Within the equity market, a rotation in favour of the ‘value’ style of investing — buying stocks because they are cheap compared with their fundamentals — is under way. This is a big development and follows eight years of value underperformance. The question is whether it can be distinguished from the rise in bond yields and the strengthening belief that economic growth is returning. Meanwhile, the momentum style, which capitalises on the tendency of winning stocks to keep winning and losers to keep losing, has suffered a serious reverse.” Other investment houses with a value orientation, for example Prudential, have also emerged at the top of this list of South Africa’s best asset managers. – Jackie Cameron
Morningstar Rating Analysis of South African Asset Managers
The Morningstar South African Rating Analysis of unit trusts is designed to compare managed fund ranges
across South African asset managers by aggregating their Morningstar Ratings. The research format is
calculated on a quarterly basis. It provides a quantitative assessment of the risk-adjusted return of all South
African domiciled unit trusts carrying a Morningstar Rating.
The Morningstar Rating for funds, often called the “Star Rating”, debuted in 1985 and was quickly embraced by investors. The Morningstar Rating is a quantitative assessment of a fund’s past performance and is measured from a minimum of one to a maximum of five stars. The methodology rates funds based on an enhanced Morningstar Risk-Adjusted Return measure that takes both return and risk into account.
The Morningstar South African Rating Analysis aggregates the rankings of providers by brand name and thus
provides a useful insight into the strengths and weaknesses of a firm’s fund range. It is, however, not designed as a forward-looking tool and does not indicate the future positioning of asset managers. This follows the line that the Morningstar Rating is intended for use as the first step in the fund evaluation process.
The Morningstar South African Rating Analysis is a quantitative calculation. It delivers an Overall-Weighted and an Asset-Weighted ranking of asset managers and their rated range of South African domiciled funds. The rankings also show the percentage of 4 and 5 Star rated funds across all rated funds for an asset manager.
The rankings by Overall-Weighted and Asset-Weighted Ratings both have their merits. The ranking by OverallWeighted Morningstar Rating mirrors the average quality of the overall fund range given that all funds are weighted equally. The Asset-Weighted ranking gives an assessment of an asset manager’s weakness and strength, in light of how investors allocated assets between available investment options within the fund range.
The Morningstar Rating Analysis of Unit Trusts includes all South African retail domiciled funds with a
Morningstar Rating. This implies that funds belonging to several broad categories are excluded since they are
not eligible for a Morningstar Rating. This includes, amongst others, alternative funds, money market funds and commodity funds.
Link to: Morningstar Rating Methodology.